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<SEC-DOCUMENT>0001003297-04-000097.txt : 20040218
<SEC-HEADER>0001003297-04-000097.hdr.sgml : 20040218
<ACCEPTANCE-DATETIME>20040218153827
ACCESSION NUMBER:		0001003297-04-000097
CONFORMED SUBMISSION TYPE:	10QSB/A
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20031231
FILED AS OF DATE:		20040218

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			PRO DEX INC
		CENTRAL INDEX KEY:			0000788920
		STANDARD INDUSTRIAL CLASSIFICATION:	WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047]
		IRS NUMBER:				841261240
		STATE OF INCORPORATION:			CO
		FISCAL YEAR END:			0630

	FILING VALUES:
		FORM TYPE:		10QSB/A
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-14942
		FILM NUMBER:		04613234

	BUSINESS ADDRESS:	
		STREET 1:		MICRO MOTORS, INC.
		STREET 2:		151 EAST COLUMBINE
		CITY:			SANTA ANA
		STATE:			CA
		ZIP:			92707
		BUSINESS PHONE:		714-241-4411

	MAIL ADDRESS:	
		STREET 1:		MICRO MOTORS INC.
		STREET 2:		151 EAST COLUMBINE
		CITY:			SANTA ANA
		STATE:			CA
		ZIP:			92707
</SEC-HEADER>
<DOCUMENT>
<TYPE>10QSB/A
<SEQUENCE>1
<FILENAME>prodex10qsb.htm
<TEXT>

<head>


<title>Prepared by E-Services - www.edgar2.net</title>



</head>

<html>

<body lang=EN-US link=blue vlink=purple style='text-justify-trim:punctuation'>



<div align="left">



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='border-collapse:collapse;border-collapse:collapse' width="750" bordercolor="#111111">
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  <p align="center">
  <b><font size="4">UNITED STATES <br>
  SECURITIES AND EXCHANGE COMMISSION</font></b></p>
  <p align=center style='text-align:center'><b>Washington, D.C. 20549</b></p>

  <p><b>&nbsp;</b></p>
  <p align=center style='text-align:center'><b>&nbsp;<font size="6">FORM
  10-QSB/A</font></b></p>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  <p style='margin-left:.75in;text-indent:-.75in;text-autospace:
  none'><b>[X]&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Quarterly Report Pursuant to Section
  13 or 15(d) of the Securities Exchange Act of 1934.</b></p>
  <p align=center style='text-align:center;text-autospace:none'><b>For
  the quarterly period ended December 31, 2003</b></p>
  <p align=center style='text-align:center'><b>OR</b></p>
  <p style='margin-left:.75in;text-indent:-.75in;text-autospace:
  none'><b>[&nbsp; ]&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Transition Report Pursuant to Section
  13 or 15(d) of the Securities Exchange Act of 1934.&nbsp;&nbsp; For the transition
  period from&nbsp; <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u>to&nbsp;
  <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; .</u></b></p>
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
</table>

</div>

<p style='text-autospace:none'><b>&nbsp;</b></p>

<div align="left">

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=721
 style='width:750;border-collapse:collapse;border-collapse:collapse' bordercolor="#111111">
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b>Commission
  File Number&nbsp;&nbsp;&nbsp; 0-14942 </b></p>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b>
  <font size="6">PRO-DEX, INC.&nbsp;&nbsp;&nbsp; </font> </b></p>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b>(Exact
  name of small business issuer as specified in its
  charter)&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>Colorado
  </u></b></p>
  </td>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>84-1261240
  </u></b></p>
  </td>
 </tr>
 <tr>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b>(State
  or Other Jurisdiction of&nbsp;&nbsp;&nbsp; </b></p>
  </td>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b>(IRS
  Employer Identification No.) </b></p>
  </td>
 </tr>
 <tr>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b>Incorporation
  or Organization)&nbsp;&nbsp;&nbsp; </b></p>
  </td>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>151
  E. Columbine Avenue, Santa Ana, California 92707&nbsp;&nbsp;&nbsp; </u></b></p>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b>(Address
  of Principal Executive Offices)&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; &nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b>Issuer's
  telephone number: <u>714 241 4411&nbsp;&nbsp;&nbsp; </u></b></p>
  </td>
 </tr>
</table>





</div>





<p style='text-align:justify;text-autospace:none'>Indicate by check mark whether the Registrant (1) has
filed all reports required by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety days.&nbsp;&nbsp;&nbsp; Yes [X] No [ ] </p>



<p style='text-autospace:none'>Indicate
the number of shares outstanding of each of the Registrant's classes of Common
Stock outstanding as of the latest practicable date:&nbsp; 8,776,600 shares of
Common Stock, no par value, as of January 31, 2004. </p>



<p style='text-autospace:none'>Transitional
Small Business Disclosure Format:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Yes [&nbsp; ] No [X]</p>



<hr color="#000080"><br clear=all
style='page-break-before:always'>


<p><b>Item 1. &nbsp;&nbsp;&nbsp;&nbsp; Financial
Statements</b></p>



<p align=center style='text-align:center;text-autospace:none'><b>PRO-DEX,
INC. AND SUBSIDIARIES <br>
CONSOLIDATED
BALANCE SHEETS </b></p>

<div align="left">



<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='width:740;margin-left:5.4pt;border-collapse:collapse;border:medium none; '>
 <tr style='page-break-inside:avoid'>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:355;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p><b>&nbsp;</b></p>
  </td>
  <td valign=top style='width:150;border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><i>December 31, 2003</i></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'><i>June 30, 2003</i></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=top style='width:150;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><i>&nbsp;(unaudited)</i></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'><i>&nbsp;(audited)</i></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p><b>ASSETS</b></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:150;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Current assets:</p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:150;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;
  Cash and cash equivalents </p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  532,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  795,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;
  Accounts receivable, net of allowance for doubtful </p>
  </td>
  <td width=150 valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  accounts of $45,000 and $30,000 </p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,170,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,620,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;
  Inventories, net </p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,925,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,835,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;
  Prepaid expenses </p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 202,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 81,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;
  Deferred taxes</p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;750,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 770,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; Total current
  assets </p>
  </td>
  <td width=150 valign=top style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6,579,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6,101,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Equipment and leasehold
  improvements, net&nbsp;</p>
  </td>
  <td width=150 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;995,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,040,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Other assets:</p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp; Goodwill</p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,110,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,110,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp; Deferred taxes </p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 833,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 833,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;
  Other </p>
  </td>
  <td width=150 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 11,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 20,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; Total other assets </p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,954,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,963,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=150 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Total assets</p>
  </td>
  <td width=150 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.5pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp; 9,528,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.5pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp; 9,104,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p><b>&nbsp;</b></p>
  <p><b>LIABILITIES AND
  SHAREHOLDERS' EQUITY</b></p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Current liabilities:</p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp; Current portion of long term debt to shareholder
  </p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 83,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 65,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp; Credit line payable </p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 250,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 432,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp; Accounts payable </p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp; 337,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;642,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp; Accrued expenses </p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 524,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 349,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp; Income taxes payable </p>
  </td>
  <td width=150 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 311,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 29,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp; Total current
  liabilities </p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,506,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,517,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Long-term debt to a
  shareholder, net of current portion</p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp; 111,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 145,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=150 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Total liabilities</p>
  </td>
  <td width=150 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,616,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,662,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Commitments and
  contingencies </p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Shareholders' equity:</p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp; Series A convertible preferred shares; no par
  value; liquidation&nbsp;&nbsp; preference of $3.60 per share; 10,000,000 shares
  authorized; 78,129 shares issued and outstanding </p>
  </td>
  <td width=150 valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 283,000&nbsp;</p>
  </td>
  <td width=119 valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 283,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp; Common shares; no par value; 50,000,000 shares
  authorized; 8,776,600 and 8,711,600 shares issued and outstanding,
  respectively </p>
  </td>
  <td width=150 valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp; 15,033,000&nbsp;</p>
  </td>
  <td width=119 valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp; 14,999,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp; Accumulated deficit </p>
  </td>
  <td width=150 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (7,366,000)</p>
  </td>
  <td width=119 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (7,789,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,950,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,493,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp; Receivable for stock
  purchase </p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (38,000)</p>
  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (51,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=150 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Total shareholders' equity</p>
  </td>
  <td width=150 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,912,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,442,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=150 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:355;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Total liabilities and
  shareholders' equity</p>
  </td>
  <td width=150 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp; 9,528,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp; 9,104,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:355;border-top:medium none;padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=150 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
</table>

</div>

<p><i>&nbsp;See notes to consolidated
financial statements.</i></p>







<p style='text-autospace:none'><b>&nbsp;</b></p>







<p style='text-autospace:none' align="center">&nbsp;</p>







<p style='text-autospace:none' align="center">-2-</p>



<hr color="#000080">
<p><br clear=all
style='page-break-before:always'>


</p>

<p align=center style='text-align:center;text-autospace:none'><b>PRO-DEX,
INC. AND SUBSIDIARIES <br>
CONSOLIDATED
STATEMENTS OF INCOME<br>
(Unaudited)</b></p>



<div align=left>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='width:720;border-collapse:collapse;border-collapse:collapse;border:medium none msorm' bordercolor="#000000">
 <tr style='page-break-inside:avoid' style='page-break-inside:avoid !msorm'>
  <td rowspan=2 valign=top style='width:385;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=top style='width:285;border-top:1.0pt solid msorm;
  border-left:medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><i>Three Months Ended December 31,</i></p>
  </td>
 </tr>
 <tr style='page-break-inside:avoid' style='page-break-inside:avoid !msorm'>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:131;border-bottom:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><i>2003</i></p>
  </td>
  <td valign=top style='width:140;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><i>2002</i></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:130;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:140;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Net sales </p>
  </td>
  <td width=130 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp; 3,704,000&nbsp;</p>
  </td>
  <td width=140 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp; 2,882,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=130 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=140 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Cost of sales</p>
  </td>
  <td width=130 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>1,997,000&nbsp;</p>
  </td>
  <td width=140 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>1,624,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:4.5pt' style='height:4.5pt !msorm'>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  ; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Gross profit </p>
  </td>
  <td width=130 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>1,707,000&nbsp;</p>
  </td>
  <td width=140 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>1,258,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:4.5pt' style='height:4.5pt !msorm'>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  ; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=130 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=140 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr style='height:4.5pt' style='height:4.5pt !msorm'>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  ; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Operating expenses: </p>
  </td>
  <td width=130 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=140 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp; Selling </p>
  </td>
  <td width=130 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 193,000&nbsp;</p>
  </td>
  <td width=140 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>164,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp; General and
  administrative expenses </p>
  </td>
  <td width=130 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>682,000&nbsp;</p>
  </td>
  <td width=140 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>714,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp; Research and
  development costs </p>
  </td>
  <td width=130 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>439,000&nbsp;</p>
  </td>
  <td width=140 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>388,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Total operating expenses </p>
  </td>
  <td width=130 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>1,314,000&nbsp;</p>
  </td>
  <td width=140 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>1,266,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=130 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=140 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Income (loss)
  from operations </p>
  </td>
  <td width=130 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>393,000&nbsp;</p>
  </td>
  <td width=140 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(8,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=130 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=140 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Other
  income (expense): </p>
  </td>
  <td width=130 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=140 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp; Other income, net </p>
  </td>
  <td width=130 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>6,000&nbsp;</p>
  </td>
  <td width=140 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(10,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp; Interest (expense) </p>
  </td>
  <td width=130 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(16,000)</p>
  </td>
  <td width=140 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(31,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Total</p>
  </td>
  <td width=130 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(10,000)</p>
  </td>
  <td width=140 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(41,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=130 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=140 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Income (loss) before
  provision for income taxes (credits)</p>
  </td>
  <td width=130 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>383,000&nbsp;</p>
  </td>
  <td width=140 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(49,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=130 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=140 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Provision (credit) for
  income taxes</p>
  </td>
  <td width=130 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>153,000&nbsp;</p>
  </td>
  <td width=140 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(20,000)</p>
  </td>
 </tr>
 <tr style='height:9.0pt' style='height:9.0pt !msorm'>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  ; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Net Income (loss)</p>
  </td>
  <td width=130 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:2.25pt double msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>230,000&nbsp;</p>
  </td>
  <td width=140 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:2.25pt double msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(29,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="left">

  <p>Net Income
  (loss) per share:</p>
  </td>
  <td width=130 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=140 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p style='margin-left:17.1pt'>Basic </p>
  </td>
  <td width=130 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.03&nbsp;</p>
  </td>
  <td width=140 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (0.00)</p>
  </td>
 </tr>
 <tr style='height:13.9pt' style='height:13.9pt !msorm'>
  <td valign=bottom style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  ; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p style='margin-left:17.1pt'>Diluted&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=130 valign=bottom style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.02&nbsp;</p>
  </td>
  <td width=140 valign=bottom style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (0.00)</p>
  </td>
 </tr>
 <tr>
  <td style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;border-bottom:
  medium none msorm;border-right:1.0pt solid msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=130 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=140 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;border-bottom:
  medium none msorm;border-right:1.0pt solid msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Weighted average shares
  outstanding - basic</p>
  </td>
  <td width=130 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>8,776,600&nbsp;</p>
  </td>
  <td width=140 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>8,745,700&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td style='width:384;border-top:medium none msorm;border-left:1.0pt solid msorm;border-bottom:
  medium none msorm;border-right:1.0pt solid msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=130 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=140 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:384;border-top:medium none msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Weighted average shares
  outstanding - diluted</p>
  </td>
  <td width=130 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>9,307,000 </p>
  </td>
  <td width=140 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp; 8,745,700 </p>
  </td>
 </tr>
</table>

</div>



<p align=center style='text-align:center'><i>See notes to consolidated financial statements.</i></p>



<p align=center style='text-align:center'>&nbsp;</p>



<p align=center style='text-align:center'>-3-</p>



<b><hr color="#000080"><br clear=all
style='page-break-before:always'>
</b>

<p align=center style='text-align:center;text-autospace:none'><b>PRO-DEX,
INC. AND SUBSIDIARIES <br>
CONSOLIDATED STATEMENTS
OF INCOME<br>
(Unaudited)</b></p>



<div align=left>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='width:720;border-collapse:collapse;border-collapse:collapse;border:medium none msorm' bordercolor="#000000">
 <tr style='page-break-inside:avoid' style='page-break-inside:avoid !msorm'>
  <td rowspan=2 valign=top style='width:311;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=top style='width:250;border-top:1.0pt solid msorm;
  border-left:medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:right'><i>Six Months Ended December 31,</i></p>
  </td>
 </tr>
 <tr style='page-break-inside:avoid' style='page-break-inside:avoid !msorm'>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:123;border-bottom:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:right'><i>2003&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </i></p>
  </td>
  <td valign=top style='width:127;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:right'><i>2002&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </i></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:123;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:127;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Net sales </p>
  </td>
  <td width=123 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp; 7,232,000&nbsp;</p>
  </td>
  <td width=127 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp; 5,599,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=123 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=127 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Cost of sales </p>
  </td>
  <td width=123 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;3,985,000&nbsp;</p>
  </td>
  <td width=127 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,191,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:4.5pt' style='height:4.5pt !msorm'>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  ; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Gross profit </p>
  </td>
  <td width=123 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,247,000&nbsp;</p>
  </td>
  <td width=127 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,408,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:4.5pt' style='height:4.5pt !msorm'>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  ; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=123 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=127 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr style='height:4.5pt' style='height:4.5pt !msorm'>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  ; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Operating expenses: </p>
  </td>
  <td width=123 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=127 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp; Selling </p>
  </td>
  <td width=123 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 399,000&nbsp;</p>
  </td>
  <td width=127 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 311,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp; General and
  administrative expenses </p>
  </td>
  <td width=123 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,295,000&nbsp;</p>
  </td>
  <td width=127 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,302,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp; Research and
  development costs </p>
  </td>
  <td width=123 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 826,000&nbsp;</p>
  </td>
  <td width=127 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 773,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp; Amortization</p>
  </td>
  <td width=123 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ---&nbsp;</p>
  </td>
  <td width=127 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 32,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Total operating expenses </p>
  </td>
  <td width=123 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,520,000&nbsp;</p>
  </td>
  <td width=127 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,418,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=123 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=127 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;Income (loss)
  from operations </p>
  </td>
  <td width=123 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;727,000&nbsp;</p>
  </td>
  <td width=127 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(10,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=123 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=127 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Other
  income (expense): </p>
  </td>
  <td width=123 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=127 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp; Other income
  (expense), net </p>
  </td>
  <td width=123 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12,000&nbsp;</p>
  </td>
  <td width=127 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp; Interest (expense) </p>
  </td>
  <td width=123 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (35,000)</p>
  </td>
  <td width=127 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(44,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Total</p>
  </td>
  <td width=123 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (23,000)</p>
  </td>
  <td width=127 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(48,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=123 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=127 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="left">
  <p>Income (loss) before
  provision for income taxes (credits)</p>
  </td>
  <td width=123 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 704,000&nbsp;</p>
  </td>
  <td width=127 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(58,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=123 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=127 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Provision (credit) for
  income taxes</p>
  </td>
  <td width=123 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp; 282,000&nbsp;</p>
  </td>
  <td width=127 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;(23,000)</p>
  </td>
 </tr>
 <tr style='height:9.0pt' style='height:9.0pt !msorm'>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  ; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Net Income (loss)</p>
  </td>
  <td width=123 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:2.25pt double msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 422,000&nbsp;</p>
  </td>
  <td width=127 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:2.25pt double msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (35,000)</p>
  </td>
 </tr>
 <tr style='height:13.9pt' style='height:13.9pt !msorm'>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  ; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  <p>Net Income
  (loss) per share:</p>
  </td>
  <td width=123 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=127 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr style='height:13.9pt' style='height:13.9pt !msorm'>
  <td valign=top style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  ; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p style='text-indent:17.1pt'>Basic </p>
  </td>
  <td width=123 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.05&nbsp;</p>
  </td>
  <td width=127 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (0.00)</p>
  </td>
 </tr>
 <tr style='height:13.9pt' style='height:13.9pt !msorm'>
  <td valign=bottom style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  ; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p style='text-indent:17.1pt'>Diluted&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=123 valign=bottom style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.05&nbsp;</p>
  </td>
  <td width=127 valign=bottom style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (0.00)</p>
  </td>
 </tr>
 <tr>
  <td style='width:311;border-top:medium none msorm;border-left:1.0pt solid msorm;border-bottom:
  medium none msorm;border-right:1.0pt solid msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=123 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=127 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:311;border-top:medium none msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Weighted average shares
  outstanding - basic</p>
  </td>
  <td width=123 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp; 8,771,300&nbsp;</p>
  </td>
  <td width=127 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp; 8,766,400&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td style='border-right:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:311;border-left:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=123 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=127 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  &nbsp;</td>
 </tr>
 <tr>
  <td style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:311;border-top:medium none msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Weighted average shares
  outstanding - diluted</p>
  </td>
  <td width=123 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp; 9,266,300&nbsp;</p>
  </td>
  <td width=127 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp; &nbsp;8,766,400&nbsp;</p>
  </td>
 </tr>
</table>

</div>



<p align=center style='text-align:center;text-autospace:none'><i>See notes to consolidated financial statements.</i></p>







<p style='text-autospace:none' align="center">&nbsp;</p>







<p style='text-autospace:none' align="center">-4-</p>



<hr color="#000080">
<p><br clear=all
style='page-break-before:always'>


</p>

<p align=center style='text-align:center;text-autospace:none'><b>PRO-DEX,
INC. AND SUBSIDIARIES <br>
CONSOLIDATED STATEMENTS
OF CASH FLOWS<br>
(Unaudited)</b></p>



<div align=left>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='margin-left:5.4pt;border-collapse:collapse;border-collapse:
 collapse;border:medium none msorm; ' width="738" bordercolor="#000000">
 <tr style='page-break-inside:avoid' style='page-break-inside:avoid !msorm'>
  <td rowspan=2 valign=top style='width:442;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="38">

  </td>
  <td colspan=2 valign=top style='width:266;border-top:1.0pt solid msorm;
  border-left:medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="18">
  <p align=center style='text-align:center'><i>&nbsp;Six Months Ended December 31,</i></p>
  </td>
 </tr>
 <tr style='page-break-inside:avoid' style='page-break-inside:avoid !msorm'>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:133;border-bottom:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="18">
  <p align=center style='text-align:center'><i>2003</i></p>
  </td>
  <td valign=top style='width:119;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="18">
  <p align=center style='text-align:center'><i>2002</i></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="1">

  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">
  <p>Cash Flows from Operating
  Activities: </p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">
  <p>Net Income (loss)</p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 422,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (35,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="36">
  <p>&nbsp;&nbsp;&nbsp; Adjustments to
  reconcile net (loss) to net<br>
  &nbsp;&nbsp;&nbsp; cash used in
  operating activities:</p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">
  <p>&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Depreciation
  and amortization </p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>193,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>202,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp; Provision for
  doubtful accounts </p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>15,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>6,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp; Reserve for
  obsolete inventory </p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(136,000)</p>
  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(51,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Non-cash
  compensation </p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>13,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>13,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deferred taxes </p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>20,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>--&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="left" width="441">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Changes in:</p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Increase)
  in accounts receivable </p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(565,000)</p>
  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(64,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Decrease
  in inventories </p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>45,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>399,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Increase)
  in prepaid expenses </p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(88,000)</p>
  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(22,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Increase)
  decrease in other assets</p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>9,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(2,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Decrease)
  in accounts payable and accrued expense </p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(153,000)</p>
  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(766,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="18">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;(Decrease)
  increase in income taxes payable </p>
  </td>
  <td width=132 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>282,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(23,000)</p>
  </td>
 </tr>
 <tr style='height:6.25pt' style='height:6.25pt !msorm'>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  :18; !; padding-left:5.4pt; padding-right:5.4pt; !'>

  </td>
  <td width=132 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="18">
  <p>Net Cash (used in)
  Operating Activities </p>
  </td>
  <td width=132 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>57,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(343,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">

  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr style='height:10.75pt' style='height:10.75pt !msorm'>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  :17; !; padding-left:5.4pt; padding-right:5.4pt; !'>
  <p>Cash Flows From Investing
  Activities: </p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr style='height:10.75pt' style='height:10.75pt !msorm'>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  :17; !; padding-left:5.4pt; padding-right:5.4pt; !'>
  <p>&nbsp;&nbsp; Proceeds from sale of
  discontinued operations </p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>---&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>790,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="18">
  <p>&nbsp;&nbsp; Net additions to
  equipment and leasehold improvements </p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(148,000)</p>
  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(106,000)</p>
  </td>
 </tr>
 <tr style='height:5.35pt' style='height:5.35pt !msorm'>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  :17; !; padding-left:5.4pt; padding-right:5.4pt; !'>

  </td>
  <td width=132 valign=top style='border-top:1.0pt solid msorm;
  border-left:medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-top:1.0pt solid msorm;
  border-left:medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="18">
  <p>Net Cash provided by (used
  in) Investing Activities </p>
  </td>
  <td width=132 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;(148,000)</p>
  </td>
  <td width=119 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;684,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">

  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">
  <p>Cash Flows from Financing
  Activities:</p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;
  Principal payments on long-term borrowings </p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(25,000)</p>
  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(82,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;
  Net payments on line of credit </p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(182,000)</p>
  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(323,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;
  Additional paid in capital </p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>35,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>---&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="18">
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;
  Stock repurchases </p>
  </td>
  <td width=132 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>---&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(32,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">

  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="18">
  <p>Net Cash (used in)
  Financing Activities</p>
  </td>
  <td width=132 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(172,000)</p>
  </td>
  <td width=119 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(437,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">

  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">
  <p>Net (decrease) in Cash and
  Cash Equivalents </p>
  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(263,000)</p>
  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>(96,000)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="18">
  <p>Cash and Cash Equivalents,
  beginning of period </p>
  </td>
  <td width=132 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;795,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;236,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="17">

  </td>
  <td width=132 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><u>&nbsp;</u></p>
  </td>
  <td width=119 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><u>&nbsp;</u></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:441;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="18">
  <p>Cash and Cash Equivalents,
  end of period </p>
  </td>
  <td width=132 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 532,000&nbsp;</p>
  </td>
  <td width=119 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 140,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:441;border-top:medium none msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' height="18">

  </td>
  <td width=132 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=119 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
</table>

</div>



<p align=center style='text-align:center'><i>Supplemental Information</i></p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='margin-left:5.4pt;border-collapse:collapse;border-collapse:
 collapse;border:medium none msorm; ' bordercolor="#000000" width="712">
 <tr>
  <td valign=top style='width:418;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Cash payments for interest</p>
  </td>
  <td width=131 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$33,000</p>
  </td>
  <td width=117 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$34,000</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:418;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=131 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=117 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:418;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Cash payments for income
  taxes </p>
  </td>
  <td width=131 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>4,000</p>
  </td>
  <td width=117 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>2,000</p>
  </td>
 </tr>
</table>

</div>

<p><i>&nbsp;</i></p>

<p align=center style='text-align:center'><i>See notes to consolidated financial statements.</i></p>



<p align=center style='text-align:center'>&nbsp;</p>



<p align=center style='text-align:center'>-5-</p>



<b><hr color="#000080"><br clear=all
style='page-break-before:always'>
</b>

<p align=center style='text-align:center;text-autospace:none'><b>PRO-DEX,
INC. AND SUBSIDIARIES <br>
</b><b>NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS </b></p>

<p style='text-autospace:none'><b>Basis of Presentation</b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These financial statements should be read in conjunction
with the audited financial statements presented in the Company's Annual Report
for the fiscal year ended June 30, 2003.&nbsp; In the opinion of management, all
adjustments&nbsp; considered necessary for a fair presentation have been included.
The results of operations for such interim periods are not necessarily
indicative of the results that may be expected for the full year. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended June 30, 2003. </p>

<p style='text-autospace:none'><b>Inventories</b></p>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Inventories are stated at the lower of cost (the first-in, first-out method) or
market and consist of the following: </p>



<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=546
 style='width:409.75pt;border-collapse:collapse;border-collapse:
 collapse;border:medium none msorm; ' bordercolor="#000000">
 <tr>
  <td width=246 valign=bottom style='width:184.75pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  solid windowtext 1.0pt !msorm;border-bottom:none !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=150 valign=bottom style='width:112.5pt;border:none;border-top:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-top:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>December
  31, 2003<br>
  <u>(unaudited)
  </u></p>
  </td>
  <td width=150 valign=bottom style='width:112.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>&nbsp;June
  30, 2003</u>&nbsp;<u> </u></p>
  </td>
 </tr>
 <tr>
  <td width=246 valign=top style='width:184.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Raw materials </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$&nbsp;&nbsp;&nbsp;&nbsp; 1,339,000 </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'>$&nbsp;&nbsp;&nbsp;&nbsp; 1,443,000 </p>
  </td>
 </tr>
 <tr>
  <td width=246 valign=top style='width:184.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Work in process </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>579,000 </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'>340,000 </p>
  </td>
 </tr>
 <tr>
  <td width=246 valign=top style='width:184.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Development costs under
  contract</p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>---</p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'>181,000</p>
  </td>
 </tr>
 <tr>
  <td width=246 valign=top style='width:184.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><u>Finished goods </u></p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>1,263,000 </u></p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp; 1,263,000 </u></p>
  </td>
 </tr>
 <tr>
  <td width=246 valign=top style='width:184.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp; Total
  </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>3,181,000 </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'>3,227,000 </p>
  </td>
 </tr>
 <tr>
  <td width=246 valign=top style='width:184.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><u>Reserve for slow moving
  items </u></p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (256,000) </u></p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp; (392,000) </u></p>
  </td>
 </tr>
 <tr>
  <td width=246 valign=top style='width:184.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp; Total
  inventories, net </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$&nbsp;&nbsp; &nbsp; 2,925,000 </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'>$&nbsp; 2,835,000 </p>
  </td>
 </tr>
</table>





<p style='text-autospace:none'><b>GOODWILL</b></p>



<p style='text-align:justify;text-indent:.5in'>On July 1, 2002
the Company adopted SFAS No. 142 &quot;Goodwill and Other Intangible Assets.&quot;&nbsp; SFAS
No. 142 requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS No. 142.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in'>Management has
determined that each of the Company's subsidiaries is a reporting unit.&nbsp; Upon
adoption of SFAS No. 142, the Company assigned all the assets and liabilities
to the reporting units and has recorded no impairment charge in 2003.&nbsp; The
Company prepares its annual impairment testing on April 1 of each year.&nbsp; The
Company has compared the estimated carrying value of the Micro Motors
subsidiary with the estimated fair value of the subsidiary and determined that
none of the goodwill recorded as of April 1, 2003 was impaired.&nbsp; Additionally,
during the quarter ended December 31, 2003, management determined that there
are no events or circumstances which have occurred that would more likely than
not reduce the fair value of Micro Motors below its carrying value.</p>









<p style='text-autospace:none' align="center">&nbsp;</p>







<p style='text-autospace:none' align="center">-6-</p>



<hr color="#000080">
<p><br clear=all
style='page-break-before:always'>


</p>









<p style='text-align:justify'><b>Stock Repurchase Plan</b></p>



<p style='text-align:justify;text-indent:.5in'>In September
2002, the Company's Board of Directors authorized the repurchase on the open
market of up to 500,000 shares of the Company's outstanding Common Stock,
subject to compliance with applicable laws and regulations.&nbsp; There is no
requirement that the Company repurchase all or any portion of such shares.&nbsp; The
maximum total value of the repurchase is not to exceed $500,000.&nbsp; The maximum
price per share that can be paid is $1.25.&nbsp; The repurchase is to be financed
both with cash generated by operations and through the utilization of the
Company's credit facility.&nbsp; From the inception of the repurchase authorization
through the year-end date of June 30, 2003, the Company repurchased 75,700
shares of Common Stock for $43,741, at an average price of $0.58 per share.&nbsp; No
additional shares were repurchased in the six months ending December 31, 2003.</p>

<p style='text-autospace:none'><b>Net Income (loss) per share </b></p>

<p style='margin-top:6.0pt;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
following table reconciles the weighted average shares outstanding for basic
and diluted net income per share for the periods indicated (unaudited).</p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=630
 style='width:700;margin-left:18.9pt;border-collapse:collapse;border-collapse:collapse;border:medium none msorm; ' bordercolor="#000000">
 <tr style='page-break-inside:avoid' style='page-break-inside:avoid !msorm'>
  <td width=375 valign=top style='width:281.4pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td width=255 colspan=2 valign=top style='width:191.1pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p align=center style='text-align:center'>Six Months Ended
  December 31,</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td width=129 valign=top style='width:96.6pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p align=center style='text-align:center'>2003</p>
  </td>
  <td width=126 valign=top style='width:94.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p align=center style='text-align:center'>2002</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td width=129 valign=top style='width:96.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td width=126 valign=top style='width:94.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Net
  income (loss)</p>
  </td>
  <td width=129 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 422,000</p>
  </td>
  <td width=126 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (35,000)</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Basic net income (loss) per common share:</p>
  </td>
  <td width=129 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=126 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>&nbsp;&nbsp; Weighted average of common shares outstanding&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=129 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,771,300</p>
  </td>
  <td width=126 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,766,400&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Basic net income (loss) per common share&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=129 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;0.05</p>
  </td>
  <td width=126 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (0.00)</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td width=129 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=126 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Diluted net income
  (loss) per share:</p>
  </td>
  <td width=129 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=126 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>&nbsp;&nbsp; Weighted average of common shares outstanding&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=129 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,771,300</p>
  </td>
  <td width=126 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,766,400&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities
  (options) </p>
  </td>
  <td width=129 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 372,067</p>
  </td>
  <td width=126 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;--&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities
  (warrants) </p>
  </td>
  <td width=129 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;44,803</p>
  </td>
  <td width=126 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; border-right:1.0pt solid msorm; !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; --&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities
  (convertible<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Preferred Shares)</p>
  </td>
  <td width=129 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  <p><br>
  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;78,129</p>
  </td>
  <td width=126 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><br>
  --&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Weighted average number of common and shares - Diluted</p>
  </td>
  <td width=129 valign=bottom style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,266,299</p>
  </td>
  <td width=126 valign=bottom style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,766,400&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Diluted net income (loss) per common share</p>
  </td>
  <td width=129 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.05</p>
  </td>
  <td width=126 valign=top style='border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (0.00)</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Common shares issuable upon conversion of 78,129 shares of preferred
stock have not been included in the 2002 computation because their inclusion
would have been anti-dilutive.&nbsp; In addition, common shares issuable upon
conversion of 85,674 common stock options have not been included in the 2002
computation because their inclusion would have been anti-dilutive.&nbsp; </p>



<p style='text-autospace:none'><b>LINE OF CREDIT</b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The subsidiaries of the Company entered into a credit facility with Wells
Fargo Business Credit Inc. (WFBCI) in May 2002 for borrowings up to the lesser
of $3,000,000 or the total of the eligible accounts receivable.&nbsp; The terms of
the credit facility were to expire May 2005 and required monthly interest
payments at the prime rate plus 1.00% to 1.75% based on outstanding borrowings,
with a minimum interest charge of $12,500 per quarter.&nbsp; The outstanding
borrowings were secured by all assets of the Company's two subsidiaries, Micro
Motors and OMS, and were guaranteed by the Company. </p>



<p style='text-align:justify;text-indent:.5in'>In October 2003,
the credit facility with WFBCI was ended and refinanced with a more favorable
facility by Wells Fargo Bank, N.A. (Wells Fargo) for borrowings up to the
lesser of $2,000,000 or the total of the eligible accounts receivable.&nbsp;
The terms of the credit facility expire October 2004 and require monthly
interest payments at the prime rate (4.00% at December 31, 2003) or LIBOR plus
2.75% based on outstanding borrowings, with a no minimum interest charge.&nbsp;
The outstanding borrowings are secured by all assets of the Company's two
subsidiaries, Micro Motors and Oregon Micro Systems (OMS), and are guaranteed
by the Company.&nbsp; The outstanding balance under the terms of this credit
facility as of December 31, 2003 was $250,000.&nbsp; The total additional
eligible borrowing capacity based on the receivables balances at December 31,
2003 was $1,256,000.</p>







<p style='text-autospace:none' align="center">&nbsp;</p>







<p style='text-autospace:none' align="center">-7-</p>



<hr color="#000080">
<p><br clear=all
style='page-break-before:always'>


</p>



<p style='text-indent:.5in;text-autospace:none'>There are
certain financial and non-financial covenants that the Company must meet to be
in compliance with the terms of the credit facility. At December 31, 2003 the
Company was in compliance with all covenants.</p>

<p style='text-autospace:none'><b>LONG TERM DEBT TO SHAREHOLDER</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Long-term debt is comprised of a $550,000 Not to Compete liability offset
by a $334,000 Note Receivable asset.&nbsp; The interest rate on both is 7%
annually.&nbsp; The Note Receivable is collateralized by the Not to Compete
liability.&nbsp; The following tables summarize the remaining net principal values
of these instruments classified as long-term debt:</p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=560
 style='width:419.9pt;margin-left:-1.45in;border-collapse:collapse;border-collapse:
 collapse' bordercolor="#000000">
 <tr>
  <td width=436 valign=top style='width:326.95pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  solid windowtext 1.0pt !msorm;border-bottom:none !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Total Not to Compete payable</p>
  </td>
  <td width=124 valign=top style='width:92.95pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 550,000</p>
  </td>
 </tr>
 <tr>
  <td width=436 valign=top style='width:326.95pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><u>Less: interest portion </u></p>
  </td>
  <td width=124 valign=top style='width:92.95pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  54,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=436 valign=top style='width:326.95pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Net Not to Compete payable</p>
  </td>
  <td width=124 valign=top style='width:92.95pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  $&nbsp;&nbsp;&nbsp;&nbsp; 496,000</u></p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;</p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=560
 style='width:419.9pt;margin-left:-1.45in;border-collapse:collapse;border-collapse:
 collapse' bordercolor="#000000">
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  solid windowtext 1.0pt !msorm;border-bottom:none !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Total Note Receivable</p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 334,000</p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><u>Less: interest portion </u></p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;32,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Net Note Receivable</p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  $&nbsp;&nbsp;&nbsp;&nbsp; 302,000</u></p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;</p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=560
 style='width:419.9pt;margin-left:-1.45in;border-collapse:collapse;border-collapse:
 collapse' bordercolor="#000000">
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  solid windowtext 1.0pt !msorm;border-bottom:none !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Net Not to Compete payable</p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 496,000</p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><u>Less: Net Note Receivable</u></p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  302,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Total Net Debt to shareholder</p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  $&nbsp;&nbsp;&nbsp;&nbsp; 194,000</u></p>
  </td>
 </tr>
</table>

</div>

<p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The following table is a summary of the remaining net principal values of
these instruments classified as long-term debt:</p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=560
 style='width:419.9pt;margin-left:-104.65pt;border-collapse:collapse;
 border-collapse:collapse' bordercolor="#000000">
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  solid windowtext 1.0pt !msorm;border-bottom:none !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Unsecured Net Debt to a
  shareholder, bearing interest at 7%, payments of $19,600 quarterly, including
  interest to June 30, 2006</p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  <p align=right style='text-align:right;text-autospace:none'>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  194,000</p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><u>Less net current portion </u></p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 83,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Net Long-term debt </p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  111,000</u></p>
  </td>
 </tr>
</table>

</div>

<p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; This debt is
subordinated to the line of credit with Wells Fargo.</p>

<p style='text-autospace:none'><b>&nbsp;</b></p>

<p style='text-autospace:none'><b>&nbsp;Income Taxes </b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Deferred income taxes are provided on a liability method whereby deferred
tax assets and liabilities are recognized for temporary differences.&nbsp; Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases.&nbsp; Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.&nbsp; The Company has a net operating
loss carry forward of $1,102,000 for State income tax purposes which expire
beginning in 2012.&nbsp; Tax credit carry forwards totaling $325,000 for Federal tax
purposes expire beginning in 2018 and $237,000 for State tax purposes do not
expire.</p>







<p style='text-autospace:none' align="center">&nbsp;</p>







<p style='text-autospace:none' align="center">-8-</p>



<hr color="#000080">
<p><br clear=all
style='page-break-before:always'>


</p>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Significant
management judgment is required in determining the Company's provision for
income taxes and the recoverability of the Company's deferred tax asset.&nbsp; It is
based on the Company's estimates of future taxable income by jurisdiction in
which it operates and the period over which the Company's deferred tax assets
will be recoverable.&nbsp; In the event that actual results differ from these
estimates or the Company adjusts these estimates in future periods it may need
to establish a valuation allowance which could result in a tax provision equal to
the carrying value of its deferred tax assets.</p>

<p style='text-autospace:none'><b>STOCK OPTIONS AND WARRANTS</b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>During the quarter ended December 31, 2003, the Company granted 15,000
Common Stock Options under the Director's Plan at the average exercise price of
$2.18 (fair market value of $1.34), and no Common Stock Options under the
Employee's Plan. The options granted under the Director's plans vest after a
period of 6 months.&nbsp; The options granted under both the Director's and Employee's
plans expire ten years from the date of the grant.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>During the quarter ended December 31, 2003, 10,000 Common Stock Options
under the Employee's Plan and 15,000 Common Stock Options under the Director's
Plan expired unexercised.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: no dividend rate for all years; price volatility of 75%, risk-free
interest rate of approximately 3.2%; and expected lives of five years for the
options and seven years for the warrants.</p>

<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='width:693;margin-left:4.5pt;border-collapse:collapse;border-collapse:collapse;border:medium none msorm; ' bordercolor="#000000">
 <tr style='page-break-inside:avoid' style='page-break-inside:avoid !msorm'>
  <td style='border:none;padding:0in 0in 0in 0in' width=1><p>&nbsp;</td>
  <td width=200 colspan=2 valign=top style='width:150.0pt;border:none;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td colspan=2 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:209;border-right:1.0pt solid msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=top style='width:283;border-top:1.0pt solid msorm;
  border-left:medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>Three Months Ended December
  31,</p>
  </td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border:none;
  border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;border:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td colspan=2 valign=top style='width:224;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=top style='width:138;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>2003</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p align=center style='text-align:center'>2002</p>
  </td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Net income (loss) As<br>
  reported:</p>
  </td>
  <td colspan=2 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:224;border-right:1.0pt solid msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:138;border-right:1.0pt solid msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  <p><br>
  $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 230,000</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  <p><br>
  $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;(29,000)</p>
  </td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td colspan=2 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:224;border-right:1.0pt solid msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Add stock-based
  employee compensation expense included in reported net income, net of related
  tax effects</p>
  </td>
  <td colspan=2 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:138;border-right:1.0pt solid msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>



  <p>&nbsp;</p>



  <p><br>
  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;---</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  </p>

  <p><br>
  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ---</p>
  </td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td colspan=2 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:224;border-right:1.0pt solid msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>(Deduct) total
  stock-based employee and director compensation expense determined under fair
  value based method for all awards, net of related tax effects</p>
  </td>
  <td colspan=2 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:138;border-right:1.0pt solid msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>



  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <br>
  <br>
  <br>
&nbsp;</p>

  <p><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (12,000)</u></p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p><br>
  <br>
  <br>
&nbsp;</p>
  <p><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp; (4,000)</u></p>
  </td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Pro-forma net income (loss):</p>
  </td>
  <td colspan=2 valign=top style='width:224;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;</p>
  </td>
  <td colspan=2 valign=top style='width:138;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p><u>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 218,000</u></p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p><u>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (33,000)</u></p>
  </td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 5.4pt 0in 5.4pt;border:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Basic earnings (loss) per </p>
  </td>
  <td colspan=2 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:224;border-right:1.0pt solid msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:138;border-right:1.0pt solid msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=130 valign=top style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>share:</p>
  </td>
  <td colspan=2 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:224;border-right:1.0pt solid msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>As reported</p>
  </td>
  <td colspan=2 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:138;border-right:1.0pt solid msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.03</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (0.00)</p>
  </td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=bottom style='width:149.2pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td colspan=2 valign=top style='width:224;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Pro forma</p>
  </td>
  <td colspan=2 valign=top style='width:138;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.02</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (0.00)</p>
  </td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Diluted earnings (loss) </p>
  </td>
  <td colspan=2 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:224;border-right:1.0pt solid msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;</p>
  </td>
  <td colspan=2 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:138;border-right:1.0pt solid msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>&nbsp;</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>per share:</p>
  </td>
  <td colspan=2 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:224;border-right:1.0pt solid msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>As reported</p>
  </td>
  <td colspan=2 valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:138;border-right:1.0pt solid msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.02</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (0.00)</p>
  </td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=bottom style='width:149.2pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td colspan=2 valign=top style='width:224;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Pro forma</p>
  </td>
  <td colspan=2 valign=top style='width:138;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.02</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (0.00)</p>
  </td>
 </tr>
 <tr height=0>
  <td width=1 style='border:none'></td>
  <td width=198 style='border:none'></td>
  <td width=2 style='border:none'></td>
  <td width=222 style='border:none'></td>
  <td width=1 style='border:none'></td>
  <td width=151 style='border:none'></td>
  <td width=130 style='border:none'></td>
 </tr>
</table>

</div>

<p style='text-autospace:none'><b>&nbsp;</b></p>







<p style='text-autospace:none' align="center">&nbsp;</p>







<p style='text-autospace:none' align="center">-9-</p>



<hr color="#000080">
<p><br clear=all
style='page-break-before:always'>


</p>

<p style='text-autospace:none'><b>FUNDS HELD IN ESCROW, NET,
BUSINESS DIVESTITURES AND DISCONTINUED OPERATIONS</b></p>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>On June 12, 2001, the Company sold substantially all of the assets of its
wholly owned subsidiaries, Biotrol International, Inc. and Challenge Products,
Inc. to Young Colorado, LLC, for a purchase price of $9 million. The assets
sold comprised the Company's line of infection control and preventive chemical
products for the dental industry.&nbsp; The Company received $688,000 of the
remaining escrow balance of $790,000 in the quarter ending September 30, 2002,
and the remaining $122,000 was received by October 2002, resulting in no
additional gain or loss, completing the distribution of funds in escrow.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>During the year ended June 30, 2002, the Company received indemnification
notices from Young, to recover alleged losses and costs as they are incurred
for certain alleged breaches of representations and warranties contained in the
Young Asset Purchase Agreement related to compliance issues with the Food,
Drug, and Cosmetic Act (&quot;FDCA&quot;), Federal Insecticide, Fungicide and Rodentcide
Act (&quot;FIFRA&quot;), and other related laws.&nbsp; In February 2002, the Company settled a
complaint with the Environmental Protection Agency (&quot;EPA&quot;) set forth in Young's
indemnification notice for alleged violations of FIFRA.&nbsp; Pursuant to the
settlement, the Company agreed to pay $150,000 to the EPA, over a 15-month
period, commencing March 2002.&nbsp; The full $150,000 settlement had been paid by
April 30, 2003, leaving in managements' opinion, no additional liability under
either Act.</p>

<p style='text-autospace:none'><b>SEGMENT INFORMATION </b></p>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
Company's reportable segments are strategic business units that offer different
products and services.&nbsp; There are two reportable segments within Pro-Dex: Micro
Motors and Oregon Micro Systems. The accounting policies applied to determine
the segment information are the same as those described in the summary of
significant accounting policies. Interest expense is allocated based upon the
specific identification of debt incurred by the individual segment. Corporate
overhead, the provision for income taxes, and loss from discontinued operations
are included in corporate profit, and are not allocated to the individual
reported segments.&nbsp; Intersegment sales and transfers are accounted for at
amounts that management believes provides the transferring segment with fair
compensation for the products transferred, considering their condition, market
demand, and, where appropriate, a reasonable profit that recognizes which
segment will be responsible for marketing costs.&nbsp; Management evaluates the
performance of each segment based on operating income (loss) before interest
and income taxes. </p>



<p>Operating Segment data (unaudited) for the six months
ending December 31, 2003 and 2002 is as follows (in thousands): </p>



<p>&nbsp;</p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='width:631;border-collapse:collapse;border-collapse:collapse' bordercolor="#000000" height="155">
 <tr>
  <td valign=bottom style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-top:1.0pt solid msorm; width:206;border-bottom:medium none msorm;padding:0in; !' height="37">
  <p align=center style='text-align:center;text-autospace:none'>Six
  months ended<br>
  December
  31, 2003</p>
  </td>
  <td valign=bottom style='width:103;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !' height="37">
  <p align=center style='text-align:center;text-autospace:none'>Micro<br>
  Motors </p>
  </td>
  <td valign=bottom style='width:117;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !' height="37">
  <p align=center style='text-align:center;text-autospace:none'>Oregon<br>
  Micro
  Systems </p>
  </td>
  <td valign=bottom style='width:108;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !' height="37">

  <p align=center style='text-align:center;text-autospace:none'>Corporate
  </p>
  </td>
  <td valign=bottom style='width:97;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !' height="37">

  <p align=center style='text-align:center;text-autospace:none'>Total</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-top:1.0pt solid msorm; width:206;border-bottom:medium none msorm;padding:0in; !' height="18">
  <p style='text-autospace:none'>Sales to external customers </p>
  </td>
  <td valign=top style='width:103;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !' height="18">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$5,861</p>
  </td>
  <td valign=top style='width:117;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !' height="18">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$1,371</p>
  </td>
  <td valign=top style='width:108;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !' height="18">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td valign=top style='width:97;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !' height="18">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>$7,232</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:206;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !' height="17">
  <p style='text-autospace:none'>Depreciation and amortization </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:103;border-right:1.0pt solid msorm;
  padding:0in; !' height="17">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>165</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:117;border-right:1.0pt solid msorm;
  padding:0in; !' height="17">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>30</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:108;border-right:1.0pt solid msorm;
  padding:0in; !' height="17">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:97;border-right:1.0pt solid msorm;
  padding:0in; !' height="17">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>195</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:206;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !' height="17">
  <p style='text-autospace:none'>Interest expense </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:103;border-right:1.0pt solid msorm;
  padding:0in; !' height="17">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>33</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:117;border-right:1.0pt solid msorm;
  padding:0in; !' height="17">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:108;border-right:1.0pt solid msorm;
  padding:0in; !' height="17">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:97;border-right:1.0pt solid msorm;
  padding:0in; !' height="17">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>33</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:206;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !' height="17">
  <p style='text-autospace:none'>Segment operating profit
  (loss)</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:103;border-right:1.0pt solid msorm;
  padding:0in; !' height="17">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>797</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:117;border-right:1.0pt solid msorm;
  padding:0in; !' height="17">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>401</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:108;border-right:1.0pt solid msorm;
  padding:0in; !' height="17">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>(470)</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:97;border-right:1.0pt solid msorm;
  padding:0in; !' height="17">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>728</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:206;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !' height="19">
  <p style='text-autospace:none'>Segment assets</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:103;border-right:1.0pt solid msorm;
  padding:0in; !' height="19">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>6,455</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:117;border-right:1.0pt solid msorm;
  padding:0in; !' height="19">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>1,455</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:108;border-right:1.0pt solid msorm;
  padding:0in; !' height="19">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>1,618</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:97;border-right:1.0pt solid msorm;
  padding:0in; !' height="19">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>9,528</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:206;border-top:medium none msorm;padding:0in; !' height="18">
  <p style='text-autospace:none'>Expenditure for segment assets</p>
  </td>
  <td valign=top style='width:103;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !' height="18">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>133</p>
  </td>
  <td valign=top style='width:117;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !' height="18">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>15</p>
  </td>
  <td valign=top style='width:108;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !' height="18">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td valign=top style='width:97;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !' height="18">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>148</p>
  </td>
 </tr>
</table>

</div>



<p>&nbsp;</p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='width:642;border-collapse:collapse;border-collapse:collapse' bordercolor="#000000">
 <tr>
  <td valign=bottom style='width:206;border:1.0pt solid msorm;padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>Six
  months ended<br>
  December
  31, 2002</p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid msorm; border-top:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:103;border-left:medium none msorm;padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>Micro<br>
  Motors </p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid msorm; border-top:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:116;border-left:medium none msorm;padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>Oregon<br>
  Micro
  Systems </p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid msorm; border-top:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:106;border-left:medium none msorm;padding:0in; !'>

  <p align=center style='text-align:center;text-autospace:none'>Corporate
  </p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid msorm; border-top:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:99;border-left:medium none msorm;padding:0in; !'>

  <p align=center style='text-align:center;text-autospace:none'>Total</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:206;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p style='text-autospace:none'>Sales to external customers </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:103;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$4,306</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:116;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$1,293</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:106;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:99;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>$5,599</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:206;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p style='text-autospace:none'>Depreciation and amortization </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:103;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>147</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:116;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>55</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:106;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:99;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>202</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:206;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p style='text-autospace:none'>Interest expense </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:103;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>44</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:116;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:106;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:99;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>44</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:206;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p style='text-autospace:none'>Segment operating profit
  (loss)</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:103;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>328</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:116;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>203</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:106;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>(541)</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:99;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>(10)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:206;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p style='text-autospace:none'>Segment assets </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:103;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>5,485</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:116;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>1,107</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:106;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>2,128</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:99;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>8,720</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:206;border-top:medium none msorm;padding:0in; !'>
  <p style='text-autospace:none'>Expenditure for segment assets
  </p>
  </td>
  <td valign=top style='width:103;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>80</p>
  </td>
  <td valign=top style='width:116;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>26</p>
  </td>
  <td valign=top style='width:106;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td valign=top style='width:99;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>106</p>
  </td>
 </tr>
</table>

</div>







<p style='text-autospace:none' align="center">&nbsp;</p>







<p style='text-autospace:none' align="center">-10-</p>



<hr color="#000080">
<p><br clear=all
style='page-break-before:always'>


</p>





<p>Operating Segment data (unaudited) for the three
months ending December 31, 2003 and 2002 is as follows (in thousands): </p>





<p>&nbsp;</p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='width:653;border-collapse:collapse;border-collapse:collapse' bordercolor="#000000">
 <tr>
  <td valign=bottom style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-top:1.0pt solid msorm; width:217;border-bottom:medium none msorm;padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>Three
  months ended<br>
  December
  31, 2003</p>
  </td>
  <td valign=bottom style='width:101;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>Micro<br>
  Motors </p>
  </td>
  <td valign=bottom style='width:122;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>Oregon<br>
  Micro
  Systems </p>
  </td>
  <td valign=bottom style='width:107;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>

  <p align=center style='text-align:center;text-autospace:none'>Corporate
  </p>
  </td>
  <td valign=bottom style='width:106;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>

  <p align=center style='text-align:center;text-autospace:none'>Total</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-top:1.0pt solid msorm; width:217;border-bottom:medium none msorm;padding:0in; !'>
  <p style='text-autospace:none'>Sales to external customers </p>
  </td>
  <td valign=top style='width:101;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$3,054</p>
  </td>
  <td valign=top style='width:122;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$650</p>
  </td>
  <td valign=top style='width:107;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td valign=top style='width:106;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>$3,704</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:217;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p style='text-autospace:none'>Depreciation and amortization </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:101;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>89</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:122;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>16</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:107;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:106;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>105</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:217;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p style='text-autospace:none'>Interest expense </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:101;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>16</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:122;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:107;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:106;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>16</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:217;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p style='text-autospace:none'>Segment operating profit
  (loss) </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:101;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>459</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:122;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>203</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:107;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>(269)</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:106;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>393</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:217;border-top:medium none msorm;padding:0in; !'>
  <p style='text-autospace:none'>Expenditure for segment assets
  </p>
  </td>
  <td valign=top style='width:101;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>49</p>
  </td>
  <td valign=top style='width:122;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>9</p>
  </td>
  <td valign=top style='width:107;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td valign=top style='width:106;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>58</p>
  </td>
 </tr>
</table>

</div>





<p>&nbsp;</p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='width:638;border-collapse:collapse;border-collapse:collapse' bordercolor="#000000">
 <tr>
  <td width=204 valign=bottom style='width:152.95pt;border:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>Three
  months ended<br>
  December
  31, 2002</p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid msorm; border-top:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:94;border-left:medium none msorm;padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>Micro<br>
  Motors </p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid msorm; border-top:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:122;border-left:medium none msorm;padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>Oregon<br>
  Micro
  Systems </p>
  </td>
  <td width=106 valign=bottom style='width:79.6pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;padding:0in 0in 0in 0in !msorm'>

  <p align=center style='text-align:center;text-autospace:none'>Corporate
  </p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid msorm; border-top:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:92;border-left:medium none msorm;padding:0in; !'>

  <p align=center style='text-align:center;text-autospace:none'>Total</p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top style='width:152.95pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Sales to external customers </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:94;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$2,229</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:122;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$653</p>
  </td>
  <td width=106 valign=top style='width:79.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:92;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>$2,882</p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top style='width:152.95pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Depreciation and amortization </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:94;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>77</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:122;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>12</p>
  </td>
  <td width=106 valign=top style='width:79.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:92;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>89</p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top style='width:152.95pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Interest expense </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:94;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>31</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:122;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td width=106 valign=top style='width:79.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:92;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>31</p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top style='width:152.95pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Segment operating profit
  (loss) </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:94;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>176</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:122;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>132</p>
  </td>
  <td width=106 valign=top style='width:79.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>(316)</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:92;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>(8)</p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top style='width:152.95pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Expenditure for segment assets
  </p>
  </td>
  <td valign=top style='width:94;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>65</p>
  </td>
  <td valign=top style='width:122;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>17</p>
  </td>
  <td width=106 valign=top style='width:79.6pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td valign=top style='width:92;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>82</p>
  </td>
 </tr>
</table>

</div>

<p style='text-autospace:none'><b>&nbsp;</b></p>

<p style='text-autospace:none'><b>Item 2. Management's
Discussion and Analysis </b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The following discussion and analysis provides information that the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition for each of the two
three month and six month periods ended December 31, 2002 and 2003,
respectively.&nbsp; This discussion should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Report. This Report contains certain forward-looking statements and
information. The cautionary statements included herein should be read as being
applicable to all related forward-looking statements wherever they may appear.&nbsp;
The Company's actual future results could differ materially from those
discussed herein.&nbsp; The Company's critical accounting policies relate to
inventory valuation for slow moving items, allowance for funds in escrow,
impairment of goodwill, and recoverability of deferred income taxes.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Except for the historical information contained herein, the matters
discussed in this Quarterly Report on Form 10-QSB, including discussions of the
Company's product development plans, business strategies and market factors
influencing the Company's results, are forward-looking statements that involve
certain risks and uncertainties. Actual results may differ from those
anticipated by the Company as a result of various factors, both foreseen and
unforeseen, including, but not limited to, the Company's ability to continue to
develop new products and increase systems sales in markets characterized by
rapid technological evolution, consolidation within the Company's target
marketplace and among the Company's competitors, and competition from larger,
better capitalized competitors. Many other economic, competitive, governmental
and technological factors could impact the Company's ability to achieve its
goals.&nbsp; Interested persons are urged to review the risks described herein, as
well as in the Company's other public disclosures and filings with the
Securities and Exchange Commission.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Pro-Dex, Inc. (&quot;Pro-Dex&quot; or the &quot;Company&quot;) is a Colorado
corporation, organized in 1978, currently generates its revenues, earnings, and
subsequent cash flows through two wholly owned operating subsidiaries, Micro
Motors, Inc. (&quot;Micro Motors&quot;) and Oregon Micro Systems, Inc.
(&quot;OMS&quot;).&nbsp; Micro Motors, headquartered in Santa Ana, California,
designs, develops and manufactures electric, air, and battery-powered rotary
drive systems for the medical device industry, electric and air devices for the
dental industry, and miniature pneumatic motors for industrial applications.&nbsp;
OMS is headquartered in Beaverton, Oregon, where it designs and manufactures
embedded multi-axis motion controllers used to regulate the motion of servo and
stepper motors, predominantly for the semiconductor and medical analysis
equipment industries. </p>







<p style='text-autospace:none' align="center">&nbsp;</p>







<p style='text-autospace:none' align="center">-11-</p>



<hr color="#000080">
<p><br clear=all
style='page-break-before:always'>


</p>



<p style='text-align:justify;text-indent:.5in'>Over the past
three years, the Company has evolved significantly in response to changing
market conditions.&nbsp; This evolution includes the strategic refocusing of the
Company's subsidiaries, the development of new products, technologies and
customer relationships, the re-casting of operational infrastructure, the
divestiture of segments of the Company's operations, and the consolidation of
the Company's executive offices and staff.&nbsp; In addition, the Company is
aggressively pursuing opportunities to leverage the strategic synergies of the
subsidiaries, increasing the interaction between the subsidiaries and better
aligning the overall strategic direction of the Company.</p>



<p style='text-align:justify;text-indent:.5in'>The Company is
able to benefit from industry trends toward increased outsourcing and
specialized vendor services as it provides high technology applications while
implementing its &quot;speed to market&quot; philosophy.&nbsp; This philosophy brings added
value to our customers and their customers by developing and implementing
leading edge products faster and more cost competitively than our customers'
internal resources could provide.&nbsp; As the Company is a technological leader in
dental and medical device development, it has benefited from the overall
economy's growth in spending in this area.&nbsp; The growth in the Company's product
offerings to include additional medical products have been successful in
changing the company from a dental and semiconductor product company to a
technology driven speed to market Company, leaving it less at risk to single,
more cyclical semi-conductor and dental markets.&nbsp; Management believes these economic
trends will continue and there remains a great opportunities for the Company to
grow.&nbsp; If however, economic and industry factors change away from outsourcing,
or the medical products industry changes in an adverse direction, Pro-Dex would
once again be forced to alter its strategy.</p>



<p><b>COMPANY AND SUBSIDIARY OVERVIEW</b></p>

<p><b>Pro-Dex</b></p>



<p style='text-align:justify;text-indent:.5in'>Pro-Dex has
continued to evolve since the divestiture of the Company's Biotrol and
Challenge subsidiaries in June of 2001.&nbsp; The proceeds from that transaction
were used to retire all of the Company's then existing bank debt, leaving the
Company virtually debt free as of June 30, 2001, and less than half its former
size.&nbsp; In response to the reduction in the Company's operations, the Company's
executive operations in Colorado were consolidated into the Micro Motors
facilities in Santa Ana, California.&nbsp; This effort to reduce corporate overhead
saved the Company approximately $980,000 in fiscal year 2003 as compared to
fiscal year 2002.&nbsp; Additional savings are expected in fiscal year 2004,
although not at as high a level.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The Company's principal headquarters are located at 151 E. Columbine
Avenue, Santa Ana, California 92707 and its phone number is 714-241-4411.&nbsp; The
Company's internet address is <u><font color="#0000FF">www.pro-dex.com</font></u>.&nbsp;
The Company's annual reports on Form 10-KSB, quarterly reports on Form 10-QSB,
current reports on Form 8-K, amendments to those reports, and other Securities
and Exchange Commission (&quot;SEC&quot;) filings, press releases and the latest earnings
call audio feed are available free of charge through our website as soon as
reasonably practicable after such reports are electronically filed with, or
furnished to, the SEC.</p>

<p><b>Description of Business of the Subsidiaries</b></p>

<p><b>Micro Motors</b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Micro Motors, designs, develops and manufactures electric, air, and
battery-powered rotary drive systems for the medical device industry, electric
and air devices for the dental industry, and miniature pneumatic motors for
industrial applications.&nbsp; Micro Motors also distributes its own line of
pneumatic and electric dental hand pieces sold under the trademarks Dynatorq&trade;,
Dynasurg&trade;, and Micro Handpiece&trade; through a network of independent sales
representatives across North America.&nbsp; In addition, Micro Motors has developed
and sells numerous private label rotary drive systems for use in dental,
cranial, spinal, arthroscopic and orthopedic surgery. Micro Motors also designs
and manufactures miniature pneumatic motors for industrial applications in the
automotive, aerospace, apparel and entertainment industries.</p>







<p style='text-autospace:none' align="center">&nbsp;</p>







<p style='text-autospace:none' align="center">-12-</p>



<hr color="#000080">
<p><br clear=all
style='page-break-before:always'>


</p>



<p style='text-align:justify;text-indent:.5in'>Significant
aspects of the Micro Motors subsidiary have changed in the last three years.&nbsp;
Historically known as a precision manufacturer of dental hand pieces, Micro
Motors has shifted its focus to the development and exclusive supply of rotary
drive systems for strategic partners in the medical, dental and industrial
segments of the commercial marketplace.&nbsp; This new approach to the market has
proved to be effective in generating new revenue streams with gross margins
significantly higher than Micro Motors' historical business.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Company-funded research and development supports the development of
rotary drive platforms.&nbsp; Micro Motors then seeks customer-funded projects to
customize these platforms to specific customer requirements. Company-funded
research and development projects generally are expected to convert to
customer-funded projects within six months.&nbsp; Company-funded project costs are
expensed as incurred.&nbsp; In customer-funded development projects, costs are
capitalized and recognized as a cost of goods sold as specific deliverables
within the development contracts are made, matching the costs to the revenue
and reducing the performance and collection risk to the Company.&nbsp; The results
of the development work are intended to provide the Company with long-term
exclusive manufacturing agreements and provide the customer with retention of
the intellectual property developed.&nbsp; The identity of the customer is generally
protected by a non-disclosure agreement.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Internally, Micro Motors has consolidated its operations and reduced the
expenses related to those operations, while continuing to grow overall sales
and develop new products.&nbsp; Since 1999, such measures include reducing its
workforce by 30% and consolidating its manufacturing operations to a 20,000
square foot facility from a 38,000 square foot facility.&nbsp; At the same time,
Micro Motors has increased the size of its Engineering and Product Development
Group by two engineers, further enabling it to respond to market demands for new
products and new technologies.</p>



<p style='text-align:justify;text-indent:.5in'>Micro Motors'
revenue is derived from three main market segments: Dental, Medical and
Industrial.&nbsp; Micro Motors dental products are sold to original equipment
manufacturers and dental product distributors.&nbsp; An independent dealer network
was established in 2003 to market its own branded line of dental products in a
more effective manner.&nbsp; Micro Motors medical products sales represent the
manufacture of proprietary designs developed by Micro Motors under exclusive
design and supply agreements.&nbsp; Micro Motors pneumatic motors for industrial
applications are marketed directly to end-users and through industrial supply
distributors.&nbsp; The increase in the percent of sales of medical products and the
decrease in the percentage of sales of dental product sales is a direct result
of the shift in the focus of the Company's research and development efforts
away from dental products and toward the Company's capabilities in the medical
product market.&nbsp;&nbsp; The proportion of Micro Motors total sales to each market
segment is noted in the table below:</p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='margin-left:-14.75pt;border-collapse:collapse;border-collapse:collapse' bordercolor="#000000" width="580">
 <tr>
  <td valign=bottom style='width:235;border:1.0pt solid msorm;padding:0in; !'>
  <p style='text-autospace:none'><b><u>Micro Motors Market
  Segment </u></b></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid msorm; border-top:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:80;border-left:medium none msorm;padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>1st half<br>
  FY
  2004</u></b></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid msorm; border-top:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:75;border-left:medium none msorm;padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>1st half<br>
  FY
  2003</u></b></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid msorm; border-top:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:17;border-left:medium none msorm;padding:0in; !'>
  &nbsp;</td>
  <td valign=bottom style='border-right:1.0pt solid msorm; border-top:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:84;border-left:medium none msorm;padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>FY
  2003</u></b></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid msorm; border-top:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:82;border-left:medium none msorm;padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>FY
  2002</u></b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:235;border-top:medium none msorm;padding:0in; !'>
  <p style='text-autospace:none'>Dental</p>
  </td>
  <td valign=top style='width:80;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>45%
  </p>
  </td>
  <td valign=top style='width:75;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>53%
  </p>
  </td>
  <td valign=top style='width:17;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:84;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>56%
  </p>
  </td>
  <td valign=top style='width:82;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>68%
  </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:235;border-top:medium none msorm;padding:0in; !'>
  <p style='text-autospace:none'>Medical</p>
  </td>
  <td valign=top style='width:80;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>45%</p>
  </td>
  <td valign=top style='width:75;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>34%
  </p>
  </td>
  <td valign=top style='width:17;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:84;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>31%</p>
  </td>
  <td valign=top style='width:82;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>15%
  </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:235;border-top:medium none msorm;padding:0in; !'>
  <p style='text-autospace:none'>Industrial</p>
  </td>
  <td valign=top style='width:80;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>5%
  </p>
  </td>
  <td valign=top style='width:75;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>8%
  </p>
  </td>
  <td valign=top style='width:17;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:84;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>8%
  </p>
  </td>
  <td valign=top style='width:82;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>11%
  </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:235;border-top:medium none msorm;padding:0in; !'>
  <p style='text-autospace:none'>Other</p>
  </td>
  <td valign=top style='width:80;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>5%</p>
  </td>
  <td valign=top style='width:75;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>5%</p>
  </td>
  <td valign=top style='width:17;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:84;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>5%</p>
  </td>
  <td valign=top style='width:82;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>6%</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Of Micro Motors sales in 2003, over 30% were shipments of products
developed in the last 12 months and 45% were shipments of products developed in
the last 24 months as a result of Research and Development contracts with new
or existing customers. </p>







<p style='text-autospace:none' align="center">&nbsp;</p>







<p style='text-autospace:none' align="center">-13-</p>



<hr color="#000080">
<p><br clear=all
style='page-break-before:always'>


</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Micro Motors' commitment to quality manufacturing is demonstrated by its
many independently verified certifications for maintaining quality processes
and products.&nbsp; Micro Motors holds the following certifications: ISO 9001:2000,
ISO 13485 revised 1998, and Medical Device Directive 93\42\EEC Annex II
company.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>At the present time, Micro Motors is generally able to fill orders within
sixty (60) days.&nbsp; At December 31, 2003, Micro Motors had an order backlog,
including orders for delivery beyond 60 days, of $3.0 million compared with an
order backlog of $4.9 million at December 31, 2002.&nbsp; The decreased backlog is
due to Micro Motors transitioning to a royalty payment agreement from a
manufacturing agreement for its HealOzone product and the lack of new long term
purchase orders contracted in the period.&nbsp; Micro Motors expects to ship more
than 80% of its backlog during the current fiscal year.&nbsp; Although Micro Motors
may experience seasonal fluctuations in its orders due to the timing of major
medical and dental sales shows and events, it does not typically experience
seasonal fluctuations in its shipments. </p>



<p><b>Oregon Micro Systems (OMS)</b></p>



<p style='text-align:justify;text-indent:.5in'>OMS is
headquartered in Beaverton, Oregon, where it designs and manufactures embedded
multi-axis motion controllers used to regulate the motion of servo and stepper
motors, predominantly for the semiconductor and medical analysis equipment
industries.&nbsp; OMS' motion controllers are used in a wide range of
applications including semiconductor wafer handling equipment, medical
diagnostic equipment, photon accelerators and observatories. The OMS
controllers support the platforms for PCI, VME, ISA, and cPCI busses as well as
standalone requirements.&nbsp; Other products sold by OMS include motors,
drivers, cables, software and a variety of accessories to meet most embedded
motion control requirements.</p>



<p style='text-align:justify;text-indent:.5in'>During the past
five years, OMS has benefited and suffered from the rapidly changing
environment of the semiconductor industry.&nbsp; It is characterized by
dramatic changes in demand for products.&nbsp; While recording two of its best
operational performances in fiscal years 1999 and 2000 with revenues in each
year exceeding $7 million, OMS was impacted severely by the downturn in the
semiconductor industry beginning in November of 2000.&nbsp; Comparatively, in
the most recent fiscal years of 2002 and 2003, revenues for OMS have been $2.2
and $2.7 million, respectively.&nbsp; In fiscal year 2003, OMS began to improve
revenues both in the semiconductor and non-semiconductor businesses as those
markets have begun to regain strength. </p>



<p style='text-align:justify; text-indent:0.5in'>In response to the rapidly
changing market conditions, OMS also significantly reduced its number of
employees, made deep cuts in operational expenses and focused on maximizing the
sales of existing product to existing customers.&nbsp; At the same time, OMS accelerated
the development of a new generation of motion control technology, based on the
PowerPC<sup>&reg;</sup> processor (PowerPC<sup>&reg; </sup>is a trademark of Intel Corporation).&nbsp;
This new servo/stepper controller became available in fiscal year 2003 and will
be expanded to create a full line of new products.&nbsp; OMS continues to
develop new customer relationships and sales with companies outside the
semiconductor industry. </p>



<p style='text-align:justify;text-indent:.5in'>OMS' revenue is
derived from predominately four market segments, including semiconductor
equipment, medical diagnostic equipment and instrumentation, factory automation
and government.&nbsp; OMS has reclassified the market segment previously
identified as &quot;Distribution&quot; to the Semiconductor, Medical, Factory Automation,
Government and Other, better reflecting the end users of the products.&nbsp; The
semiconductor equipment markets have accounted for up to 60% of OMS' sales in
recent years, however due to the technology down cycle, OMS has implemented
sales strategies to penetrate other markets.&nbsp; The increase in the percentage
of semiconductor market sales in 2003 is due to resurgence in demand in the
semiconductor industry.&nbsp; The proportion of total sales to each market
segment is noted in the table below:</p>







<p style='text-autospace:none' align="center">&nbsp;</p>







<p style='text-autospace:none' align="center">-14-</p>



<hr color="#000080">
<p><br clear=all
style='page-break-before:always'>


</p>







<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='margin-left:-14.75pt;border-collapse:collapse' width="613">
 <tr>
  <td valign=bottom style='width:224;border:1.0pt solid windowtext;
  padding:0in; '>
  <p><b><u>OMS Market Segment</u></b></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:93;border-left:medium none;padding:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b><u>1st
  half<br>
  FY
  2004</u></b></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:96;border-left:medium none;padding:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b><u>1st half<br>
  FY
  2003</u></b></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:19;border-left:medium none;padding:0in; '>
  &nbsp;</td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:86;border-left:medium none;padding:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b><u>FY
  2003</u></b></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:88;border-left:medium none;padding:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b><u>FY
  2002</u></b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:224;border-top:medium none;padding:0in; '>
  <p>Semiconductor </p>
  </td>
  <td valign=top style='width:93;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>47% </p>
  </td>
  <td valign=top style='width:96;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>49% </p>
  </td>
  <td valign=top style='width:19;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='width:86;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>49% </p>
  </td>
  <td valign=top style='width:88;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>38% </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:224;border-top:medium none;padding:0in; '>
  <p>Medical</p>
  </td>
  <td valign=top style='width:93;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>22%</p>
  </td>
  <td valign=top style='width:96;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>19%</p>
  </td>
  <td valign=top style='width:19;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='width:86;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>19%</p>
  </td>
  <td valign=top style='width:88;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>25% </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:224;border-top:medium none;padding:0in; '>
  <p>Factory Automation</p>
  </td>
  <td valign=top style='width:93;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>10% </p>
  </td>
  <td valign=top style='width:96;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>8% </p>
  </td>
  <td valign=top style='width:19;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='width:86;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>8% </p>
  </td>
  <td valign=top style='width:88;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>9% </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:224;border-top:medium none;padding:0in; '>
  <p>Government</p>
  </td>
  <td valign=top style='width:93;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>17%</p>
  </td>
  <td valign=top style='width:96;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>16% </p>
  </td>
  <td valign=top style='width:19;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='width:86;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>16% </p>
  </td>
  <td valign=top style='width:88;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>19% </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:224;border-top:medium none;padding:0in; '>
  <p>Other</p>
  </td>
  <td valign=top style='width:93;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>4%</p>
  </td>
  <td valign=top style='width:96;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>8%</p>
  </td>
  <td valign=top style='width:19;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='width:86;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>8%</p>
  </td>
  <td valign=top style='width:88;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>9%</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-indent:.5in'>OMS distributes
its product directly to original equipment manufacturers (OEM's) and through a
network of high technology distributors within the United States.&nbsp;
Internationally, OMS has agreements with foreign distributors of electronic and
motion control products.</p>



<p style='text-align:justify;text-indent:.5in'>At the present
time, OMS is generally able to fill orders within forty-five (45) days.&nbsp;
At December 31, 2003, OMS had an order backlog, including orders for delivery
beyond 45 days,&nbsp;of $966,000 compared with an order backlog of $261,000 at
December 31, 2002.&nbsp; OMS does not typically experience seasonal
fluctuations in its orders, although there are significant fluctuations in the
market demand of products in the industries it serves.</p>



<p><b>CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS</b></p>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company's consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States (GAAP).&nbsp; The
preparation of the Company's financial statements requires management to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, expenses and related disclosures.&nbsp; The Company
bases its estimates on historical experience and various other assumptions that
are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources.&nbsp; Actual results may
differ from these estimates under different assumptions or conditions.&nbsp;
The significant accounting policies that are believed to be the most critical
to aid in fully understanding and evaluating the reported financial results
include inventory valuations for slow moving items, impairment of goodwill, and
the recovery of deferred income tax assets.</p>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As part of the process of preparing the Company's consolidated financial statements
the Company is required to estimate its income taxes in each of the
jurisdictions in which it operates.&nbsp; This process involves the Company
estimating the actual current tax liabilities together with assessing temporary
differences resulting from differing treatment of items for tax and accounting
purposes.&nbsp; These differences result in deferred tax assets and
liabilities, which are included within the consolidated balance sheet.&nbsp;
The most significant tax assets are future deductions from the amortization on
intangibles over the next ten years.&nbsp; Tax assets also result from net
operating losses and research and development tax credits.&nbsp; The Company
must then assess the likelihood that the deferred tax assets will be recovered
from future taxable income and to the extent the Company believes that recovery
is not likely, a valuation allowance must be established.&nbsp; To the extent
the Company establishes a valuation allowance or increases this allowance in a
period, the impact will be included in the tax provision in the statement of
operations.</p>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Significant management judgment is required in determining the Company's
provision for income taxes and the recoverability of the deferred tax
asset.&nbsp; It is based on estimates of future taxable income by jurisdiction
in which the Company operates and the period over which the deferred tax assets
will be recoverable.&nbsp; In the event that actual results differ from these
estimates or the Company adjusts these estimates in future periods a valuation
allowance may need to be established which could result in a tax provision
equal to the carrying value of the deferred tax assets. </p>



<p style='text-align:justify'>&nbsp;</p>

<p style='text-autospace:none' align="center">&nbsp;-15-</p>

<b><hr color="#000080"><br clear=all style='page-break-before:always'>
</b>

<p style='text-autospace:none'><b>Results of Operations </b></p>

<p style='text-autospace:none'><b>For the Three-Month periods
ended December 31, 2003 and 2002</b></p>

<p><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b>The following table sets forth for the
periods indicated the percentage of net revenues represented by each item in
the Company's Consolidated Statements of Income (unaudited). </p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='margin-left:9.9pt;border-collapse:collapse;border-collapse:
 collapse;border:medium none msorm; ' bordercolor="#000000">
 <tr style='page-break-inside:avoid' style='page-break-inside:avoid !msorm'>
  <td width=402 rowspan=2 valign=top style='width:301.5pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td width=216 colspan=2 valign=top style='width:2.25in;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p align=center style='text-align:right'>Three Months Ended&nbsp;&nbsp;&nbsp;&nbsp;
  <br>
  December 31,&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
 </tr>
 <tr style='page-break-inside:avoid' style='page-break-inside:avoid !msorm'>
  <td width=114 valign=top style='width:85.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p align=center style='text-align:right'>2003&nbsp;&nbsp; </p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p align=center style='text-align:right'>2002&nbsp;&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Net Revenues: </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>&nbsp;100.0%</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>&nbsp;100.0%&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Cost of Goods Sold </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>&nbsp;54.0&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>&nbsp;56.3&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Gross Profit </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>46.0&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>43.7&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">

  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">

  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Selling, General and
  Administrative Expenses </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>23.6&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>30.5&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Research and Development Costs </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>11.8&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>13.5&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Income (loss) from Operations</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>10.6&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>(0.3)&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">

  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">

  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Net interest and other expense</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p>&nbsp;&nbsp; 0.3&nbsp;&nbsp;</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp; 1.4&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">

  </td>
  <td width=102 valign=top style='width:76.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">

  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Provision (credit) for Income Taxes</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>4.1&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>(0.7)&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Net Income (loss)</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-5.4pt'><u>6.2%</u></p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-5.4pt'><u>(1.0%)</u></p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Net Income (loss).</b>&nbsp; The Company's net income for the three
months ended December 31, 2003 was $230,000 or $0.03 per share on a basic and
$0.02 per share on a diluted basis, as compared to a net (loss) of ($29,000) or
($0.00) per share on a basic and diluted basis, for the three months ended
December 31, 2002.&nbsp; </p>

<p style='text-align:justify;text-indent:.5in'><b>Net Sales.</b>&nbsp;
Consolidated sales increased $822,000 or 29% for the quarter ended December 31,
2003, compared to the quarter ended December 31, 2002, due to increased sales
at Micro Motors.&nbsp; At Micro Motors, a 37% overall gain as compared to the
same quarter last year was due to especially large increases in shipments of
its medical products, which increased by over 154%.&nbsp; Shipments to dental
customers increased 16% as significant Healozone shipments were made and as
gains from the implementation of an independent sales force in January 2003
continued.&nbsp; Sales to industrial customers decreased as the demand for a
motor associated with commercial sewing applications declined. &nbsp;Development fees were
reduced by 51% as development projects transitioned to production
contracts.&nbsp; OMS sales were stable as&nbsp;sales to customers inside and outside
the semiconductor industry remained flat.&nbsp; Although strategic price
increases and decreases were implemented throughout the quarter at both OMS and
Micro Motors, the majority of the sales growth is due to higher volumes.&nbsp; Net
sales by subsidiary and type of customer were as follows (unaudited): </p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='width:546;border-collapse:collapse;border-collapse:collapse' bordercolor="#000000">
 <tr>
  <td width=174 valign=top style='width:130.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </td>
  <td valign=top style='width:23;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:1.0pt solid msorm;border-right:medium none msorm;
  padding:0in; !'>

  </td>
  <td colspan=3 valign=top style='width:235;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:1.0pt solid msorm;border-right:medium none msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>Three
  Months Ended December 31,<br>
  2003&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2002</p>
  </td>
  <td valign=top style='border-right:1.0pt solid msorm; border-top:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:114;border-left:medium none msorm;padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>Increase/<br>
  (Decrease)</p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Dental</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:23;border-bottom:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>$</p>
  </td>
  <td valign=top style='width:103;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>1,371,000</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:34;border-bottom:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>$</p>
  </td>
  <td valign=top style='width:98;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>1,185,000</p>
  </td>
  <td valign=top style='width:114;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>16%</p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Medical </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:23;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:103;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>1,339,000</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:34;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:98;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>528,000</p>
  </td>
  <td valign=top style='width:114;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>154%</p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Industrial</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:23;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:103;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>135,000</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:34;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:98;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>252,000</p>
  </td>
  <td valign=top style='width:114;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>(46%)</p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Development Fees</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:23;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:103;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>75,000</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:34;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:98;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>152,000</p>
  </td>
  <td valign=top style='width:114;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>(51%)</p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Repair &amp; Other</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:23;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:103;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'><u>135,000</u></p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:34;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:98;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'><u>112,000</u></p>
  </td>
  <td valign=top style='width:114;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>21%</u></p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Micro Motors </p>
  </td>
  <td valign=top style='width:23;border:medium none msorm;padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>$</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:103;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>3,054,000 </p>
  </td>
  <td valign=top style='width:34;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:98;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>2,229,000 </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:114;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>37%</p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-bottom:medium none msorm; width:23;border-top:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:103;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-bottom:medium none msorm; width:34;border-top:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:98;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:114;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>

  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><u>Oregon Micro Systems </u></p>
  </td>
  <td valign=top style='width:23;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='width:103;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>650,000 </p>
  </td>
  <td valign=top style='width:34;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='width:98;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>653,000 </p>
  </td>
  <td valign=top style='width:114;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>(0%)&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Total</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:23;border-bottom:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td valign=top style='width:103;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>3,704,000 </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:34;border-bottom:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td valign=top style='width:98;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>2,882,000 </p>
  </td>
  <td valign=top style='width:114;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>29%&nbsp;</p>
  </td>
 </tr>
</table>

</div>







<p style='text-autospace:none' align="center">&nbsp;</p>







<p style='text-autospace:none' align="center">-16-</p>



<hr color="#000080">
<p><br clear=all
style='page-break-before:always'>


</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Gross Profits</b>.&nbsp; The Company's consolidated gross profit for the
quarter ended December 31, 2003 increased 36% over the same quarter in the
previous year due to increased sales at Micro Motors and increased margins at
both operating subsidiaries. Gross profit as a percentage of sales increased to
46% for the quarter ended December 31, 2003 compared to 44% for the quarter
ended December 31, 2002 as the continued gains from increased sales, better
fixed cost absorption and a richer product mix favoring medical shipments at
Micro Motors were realized.&nbsp; Gross margin at Micro Motors increased from 35% of
sales in 2002 to 38% of sales in 2003 due to the increased sales, better fixed
cost absorption and a richer product mix favoring medical shipments.&nbsp; Gross
Margin at OMS increased from 74% of sales in 2002 to 82% of sales in 2003 due to
the realization of additional production cost reduction efforts combined with
flat sales.&nbsp; Gross profits by subsidiary were as follows (unaudited): </p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='border-collapse:collapse;border-collapse:collapse' bordercolor="#000000" width="566">
 <tr>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:168;border-right:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-bottom:medium none msorm; width:37;border-top:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td colspan=3 valign=top style='width:264;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>Three
  Months Ended December 31,</p>
  </td>
  <td valign=top style='width:93;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>Increase/</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:168;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:37;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:113;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>2003</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:38;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:112;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>2002</p>
  </td>
  <td valign=top style='width:93;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;(Decrease)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:168;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p style='text-autospace:none'>Micro Motors </p>
  </td>
  <td valign=top style='width:37;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:113;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>1,171,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:38;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:112;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>776,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:93;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>51%&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:168;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p style='text-autospace:none'><u>Oregon Micro Systems </u></p>
  </td>
  <td valign=top style='width:37;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='width:113;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>536,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:38;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='width:112;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>482,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:93;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>11%&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:168;border-top:medium none msorm;padding:0in; !'>
  <p style='text-autospace:none'>Total</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:37;border-bottom:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td valign=top style='width:113;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>1,707,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:38;border-bottom:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td valign=top style='width:112;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>1,258,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:93;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>36%&nbsp;</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Selling,
General and Administrative Costs (S, G&amp;A)</b>.&nbsp; S, G &amp; A expenses
decreased slightly to $875,000 for the quarter ended December 31, 2003 from $878,000
for the quarter ended December 31, 2002.&nbsp; The decrease is mainly due to cost
saving measures in addition to $32,000 of reduced amortization costs at OMS,
offset by increased subsidiary sales and marketing expenses.&nbsp; Selling, General
&amp; Administrative costs by subsidiary were as follows (unaudited): </p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='border-collapse:collapse;border-collapse:collapse' bordercolor="#000000" width="578">
 <tr>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:168;border-right:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-bottom:medium none msorm; width:42;border-top:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td colspan=3 valign=top style='width:259;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>Three
  Months Ended December 31,</p>
  </td>
  <td valign=top style='width:105;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>Increase/</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:168;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:42;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:108;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>2003</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:41;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:109;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>2002</p>
  </td>
  <td valign=top style='width:105;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;(Decrease)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:168;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p style='text-autospace:none'>Micro Motors </p>
  </td>
  <td valign=top style='width:42;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:108;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>448,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:41;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:109;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>421,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:105;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>6%&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:168;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p style='text-autospace:none'>Oregon Micro Systems </p>
  </td>
  <td valign=top style='width:42;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:108;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>158,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:41;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:109;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>165,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:105;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>(4%)&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:168;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p style='text-autospace:none'><u>Corporate </u></p>
  </td>
  <td valign=top style='width:42;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='width:108;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>269,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:41;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='width:109;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>292,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:105;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>(9%)&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:168;border-top:medium none msorm;padding:0in; !'>
  <p style='text-autospace:none'>Total</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:42;border-bottom:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td valign=top style='width:108;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>875,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:41;border-bottom:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td valign=top style='width:109;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>878,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:105;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>(0%)&nbsp;</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Research and
Development Costs</b>.&nbsp; Research and development expenses increased to
$439,000 for the quarter ended December 31, 2003 from $388,000 for the quarter
ended December 31, 2002, an increase of 13%. The increase is due to increased
Company funded research and development at Micro Motors in support of the
growing medical product line.&nbsp; This increase is offset by the decrease at
OMS which is due to cost cutting concurrent with the completion of the MAX
system product line development.&nbsp; The MAX system is a next generation motion
control product that became available for sale in the latter part of fiscal
2003.&nbsp; &nbsp; </p>



<p style='text-align:justify;text-indent:.5in'>The Company
engages in two types of research and development efforts.&nbsp; The first is
funded by the Company itself, intended to develop generic rotary drive multi
axis motion control technologies and products that will subsequently be
modified to meet the needs of individual customers.&nbsp; In this initial
phase, there are generally no revenues generated and the associated costs are
expensed as incurred. </p>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The second type of research and development efforts are those performed for and
funded by specific customers under the terms of a formal development agreement.&nbsp;
These efforts are generally for specific modifications to the generic products
developed by the Company-funded research.&nbsp; These projects typically take
place within 12 months of the generic development work being completed.&nbsp;
The Company recognizes revenue under these research and development agreements
as certain deliverables are met as specified in each development
contract.&nbsp; The research and development costs associated with these
efforts are capitalized as inventory and recognized as costs of goods sold when
the contracted deliverable is made.&nbsp; Company-funded research and development
costs by subsidiary were as follows:</p>







<p style='text-autospace:none' align="center">&nbsp;</p>







<p style='text-autospace:none' align="center">-17-</p>



<hr color="#000080">
<p><br clear=all
style='page-break-before:always'>


</p>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='margin-left:30.6pt;border-collapse:collapse' width="559">
 <tr>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:178;border-right:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-bottom:medium none; width:24;border-top:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td colspan=3 valign=top style='width:235;border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>Three Months Ended
  December 31,</p>
  </td>
  <td valign=top style='width:119;border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>Increase/</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:178;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; width:24;border-bottom:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='width:102;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>2003</p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; width:24;border-bottom:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='width:108;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>2002</p>
  </td>
  <td valign=top style='width:119;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>(Decrease)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:177;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p style='text-align:justify'>Micro Motors </p>
  </td>
  <td valign=top style='width:24;padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:102;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>265,000&nbsp;&nbsp; </p>
  </td>
  <td valign=top style='width:24;padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:108;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>204,000&nbsp;&nbsp; </p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:119;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>30%&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:177;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p style='text-align:justify'><u>Oregon Micro Systems </u></p>
  </td>
  <td valign=top style='width:24;padding:0in; '>

  </td>
  <td valign=top style='width:102;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>174,000&nbsp;&nbsp; </p>
  </td>
  <td valign=top style='width:24;padding:0in; '>

  </td>
  <td valign=top style='width:108;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>184,000&nbsp;&nbsp; </p>
  </td>
  <td valign=top style='width:119;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>(5%)&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:177;border-top:medium none;padding:0in; '>
  <p style='text-align:justify'>Total</p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; width:24;border-bottom:1.0pt solid windowtext;
  padding:0in; '>
  <p style='text-align:right'>$ </p>
  </td>
  <td valign=top style='width:102;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>439,000&nbsp;&nbsp; </p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; width:24;border-bottom:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>$ </p>
  </td>
  <td valign=top style='width:108;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>388,000&nbsp;&nbsp; </p>
  </td>
  <td valign=top style='width:119;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>13%&nbsp;</p>
  </td>
 </tr>
</table>

</div>

<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</p>

<p style='text-align:justify;text-indent:.5in'><b>Operating
Profits</b>.&nbsp; The Company's consolidated operating profit for the quarter
ended December 31, 2003 increased to $393,000 compared to the same quarter in
the previous year's operating (loss) of ($8,000) due to the increased sales and
margin improvements and controlled expenses at both operating subsidiaries.
Operating profit as a percentage of sales increased to 10.6% for the quarter
ended December 31, 2003 compared to (0.0%) for the quarter ended December 31,
2002.&nbsp; Operating Profit at Micro Motors increased from 6.7% of sales in
2002 to 15.0% of sales in 2003 due to the higher sales volumes and richer
product mix favoring medical products.&nbsp; Operating Profit at OMS increased
from 20.5% of sales in 2002 to 31.1% of sales in 2003 due to the reduced cost
base.&nbsp; Operating profits by subsidiary were as follows (unaudited): </p>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='margin-left:30.6pt;border-collapse:collapse' width="554">
 <tr>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:172;border-right:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-bottom:medium none; width:24;border-top:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td colspan=3 valign=top style='width:237;border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>Three Months Ended
  December 31,</p>
  </td>
  <td valign=top style='width:118;border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>Increase/</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:172;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; width:24;border-bottom:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='width:102;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>2003</p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; width:24;border-bottom:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='width:110;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>2002</p>
  </td>
  <td valign=top style='width:118;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>(Decrease)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:171;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p style='text-align:justify'>Micro Motors </p>
  </td>
  <td valign=top style='width:24;padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:102;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;458,000</p>
  </td>
  <td valign=top style='width:24;padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:110;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>151,000&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:118;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>203%&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:171;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p style='text-align:justify'>Oregon Micro Systems </p>
  </td>
  <td valign=top style='width:24;padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:102;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;203,000</p>
  </td>
  <td valign=top style='width:24;padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:110;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>133,000&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:118;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>53%&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:171;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p style='text-align:justify'><u>Corporate </u></p>
  </td>
  <td valign=top style='width:24;padding:0in; '>

  </td>
  <td valign=top style='width:102;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>(269,000)&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='width:24;padding:0in; '>

  </td>
  <td valign=top style='width:110;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>(292,000)&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:118;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>(8%)&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:171;border-top:medium none;padding:0in; '>
  <p style='text-align:justify'>Total</p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; width:24;border-bottom:1.0pt solid windowtext;
  padding:0in; '>
  <p style='text-align:right'>$ </p>
  </td>
  <td valign=top style='width:102;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:right'>393,000&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; width:24;border-bottom:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>$ </p>
  </td>
  <td valign=top style='width:110;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>(8,000)&nbsp;&nbsp; </p>
  </td>
  <td valign=top style='width:118;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>Loss to gain </p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Net
Interest Expense. </b>&nbsp;Net interest expense was $16,000 in the quarter ended
December 31, 2003, down from $31,000 in the prior year's quarter due to reduced
balance and rates on the restructured credit line. </p>



<p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Provision
for Taxes</b>. The Company's effective tax rate on income (loss) from
operations was 40% for the quarters ended December 31, 2003, and 2002. </p>

<p style='text-autospace:none'><b>For the Six Month periods
ended December 31, 2003 and 2002</b></p>

<p><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b>The following table sets forth for the
periods indicated the percentage of net revenues represented by each item in the
Company's Consolidated Statements of Income (unaudited). </p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='margin-left:9.9pt;border-collapse:collapse;border-collapse:
 collapse;border:medium none msorm; ' bordercolor="#000000" width="646">
 <tr style='page-break-inside:avoid' style='page-break-inside:avoid !msorm'>
  <td rowspan=2 valign=top style='width:348;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=top style='width:268;border-top:1.0pt solid msorm;
  border-left:medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>Six Months Ended
  December 31,</p>
  </td>
 </tr>
 <tr style='page-break-inside:avoid' style='page-break-inside:avoid !msorm'>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:125;border-bottom:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>2003</p>
  </td>
  <td valign=top style='width:129;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>2002</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:347;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Net Revenues: </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:124;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:-.05in'>&nbsp;100.0%&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:129;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:-.05in'>&nbsp;100.0%&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:347;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Cost of Goods Sold </p>
  </td>
  <td valign=top style='width:124;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:-.05in'>&nbsp;55.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='width:129;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:-.05in'>&nbsp;57.0&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:347;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Gross Profit </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:124;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:-.05in'>44.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:129;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:-.05in'>43.0&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:347;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:124;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:129;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:347;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Selling, General and
  Administrative Expenses </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:124;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:-.05in'>23.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:129;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:-.05in'>28.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:347;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Research and Development Costs </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:124;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:-.05in'>11.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:129;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:-.05in'>13.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:347;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Amortization</p>
  </td>
  <td valign=top style='width:124;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:-.05in'>--&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='width:129;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:-5.4pt'>&nbsp;&nbsp; 0.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:347;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Income (loss) from Operations </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:124;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:-.05in'>10.0&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:129;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:-.05in'>(0.2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:347;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:124;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:129;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:347;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Net interest and other expense</p>
  </td>
  <td valign=top style='width:124;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:-.05in'>&nbsp;&nbsp;0.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='width:129;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:-.05in'>&nbsp;0.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:347;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:124;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:129;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td valign=top style='width:347;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Provision (credit) for Income Taxes </p>
  </td>
  <td valign=top style='width:124;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:-.05in'>3.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='width:129;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:-.05in'>(0.4)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:347;border-top:medium none msorm;!; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Net Income (loss)</p>
  </td>
  <td valign=top style='width:124;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:.9pt'><u>&nbsp;&nbsp; 5.8%</u></p>
  </td>
  <td valign=top style='width:129;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  !; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p style='margin-right:.9pt'><u>&nbsp;&nbsp; (0.6%)</u></p>
  </td>
 </tr>
</table>

</div>







<p style='text-autospace:none' align="center">&nbsp;</p>







<p style='text-autospace:none' align="center">-18-</p>



<hr color="#000080">
<p><br clear=all
style='page-break-before:always'>


</p>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Net Income (loss).</b>&nbsp; The Company's net income for the six months
ended December 31, 2003 was $422,000 or $0.05 per share on a basic and $0.05 per
share on a diluted basis, as compared to a net (loss) of ($35,000) or ($0.00) per
share on a basic and ($0.00) per share on a diluted basis, for the six months
ended December 31, 2002.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b>Net Sales.</b>&nbsp; Consolidated sales increased 29% for the six months ended
December 31, 2003, compared to the six months ended December 31, 2002, due to
increased sales at both Micro Motors and OMS. At Micro Motors, sales increased 36%
for the six months ended December 31, 2003 compared to the six months ended
December 31, 2002, due to increased volume of medical product shipments which
rose 156% compared to the previous year's same six month period. Shipments to
dental customers increased 12% as a significant Healozone shipment was made and
as gains from the implementation of an independent sales force in January 2003
continued.&nbsp; The increase more than offsets the 59% decline of development
fees, as development contracts transitioned into production contracts, and the
26% decrease in sales to industrial customers.&nbsp; Revenue at OMS increased 6% for
the six months ended December 31, 2003 compared to the previous year's same six
month period. The increase was caused by the continued resurgence in the
semiconductor industry.&nbsp; Sales to customers outside the semiconductor industry remained
flat.&nbsp; Although selective price increases and decreases were implemented
throughout the half at both OMS and Micro Motors, the majority of the sales
growth is due to higher volumes.&nbsp; Net sales by subsidiary and type of customer
were as follows (unaudited): </p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='width:576;margin-left:-.25pt;border-collapse:collapse;border-collapse:
 collapse' bordercolor="#000000">
 <tr>
  <td width=174 valign=top style='width:130.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </td>
  <td valign=top style='width:24;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:1.0pt solid msorm;border-right:medium none msorm;
  padding:0in; !'>

  </td>
  <td colspan=3 valign=top style='border-right:1.0pt solid msorm; border-top:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:246;border-left:medium none msorm;padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>Six
  Months Ended December 31,<br>
  2003&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  &nbsp;&nbsp;&nbsp;&nbsp;2002</p>
  </td>
  <td valign=top style='border-right:1.0pt solid msorm; border-top:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:132;border-left:medium none msorm;padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>Increase/<br>
  (Decrease)</p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Dental</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:24;border-bottom:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:right;text-autospace:none'>$</p>
  </td>
  <td valign=top style='width:107;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>2,531,000</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:28;border-bottom:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:right;text-autospace:none'>$</p>
  </td>
  <td valign=top style='width:111;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>2,262,000</p>
  </td>
  <td valign=top style='width:132;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>12%&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Medical </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:24;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:107;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>2,588,000</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:28;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:111;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>1,010,000</p>
  </td>
  <td valign=top style='width:132;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>156%&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Industrial</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:24;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:107;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>269,000</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:28;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:111;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>362,000</p>
  </td>
  <td valign=top style='width:132;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>(26%)</p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Development</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:24;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:107;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>193,000</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:28;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:111;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>472,000</p>
  </td>
  <td valign=top style='width:132;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>(59%)</p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Repair &amp; Other</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:24;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:107;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 280,000</u></p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:28;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:111;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 200,000</u></p>
  </td>
  <td valign=top style='width:132;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 40%&nbsp;</u></p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Micro Motors </p>
  </td>
  <td valign=top style='width:24;border:medium none msorm;padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>$</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:107;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>5,861,000</p>
  </td>
  <td valign=top style='width:28;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:111;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>4,306,000</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:132;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>36%&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-bottom:medium none msorm; width:24;border-top:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:107;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-bottom:medium none msorm; width:28;border-top:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:111;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:132;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>

  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><u>Oregon Micro Systems </u></p>
  </td>
  <td valign=top style='width:24;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='width:107;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>1,371,000</p>
  </td>
  <td valign=top style='width:28;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='width:111;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>1,293,000</p>
  </td>
  <td valign=top style='width:132;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>6%&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Total</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:24;border-bottom:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td valign=top style='width:107;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>7,232,000</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:28;border-bottom:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td valign=top style='width:111;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>5,599,000</p>
  </td>
  <td valign=top style='width:132;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>29%&nbsp;&nbsp;</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b>Gross Profits</b>.&nbsp; The Company's consolidated gross profit for the six
months ended December 31, 2003 increased 29% over the same six months in the
previous year due to increased sales and margin improvements at both operating subsidiaries.&nbsp;
Gross profit as a percentage of sales increased to 45% for the six months ended
December 31, 2003 compared to 43% for the six months ended December 31, 2002 as
the continued gains from increased sales, the ongoing Company-wide cost
reduction efforts and a richer product mix favoring medical shipments were
realized.&nbsp; Gross Profit at Micro Motors increased from 34% of sales in
2002 to 37% of sales in 2003 due to the richer product mix favoring medical
products.&nbsp; Gross Profit at OMS increased from 73% of sales in 2002 to 78%
of sales in 2003 due to higher sales volume and a flat cost base.&nbsp; Gross
profits by subsidiary were as follows (unaudited): </p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='border-collapse:collapse;border-collapse:collapse' bordercolor="#000000" width="584">
 <tr>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:175;border-right:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-bottom:medium none msorm; width:23;border-top:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td colspan=3 valign=top style='width:246;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>Six
  Months Ended December 31,</p>
  </td>
  <td valign=top style='width:136;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>

  </td>
 </tr>
 <tr>
  <td valign=top style='width:175;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:23;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:106;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>2003</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:29;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:110;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>2002</p>
  </td>
  <td valign=top style='width:136;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;Increase</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:175;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p style='text-autospace:none'>Micro Motors </p>
  </td>
  <td valign=top style='width:23;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:106;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>2,184,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:29;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:110;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>1,471,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:136;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>48%</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:175;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p style='text-autospace:none'><u>Oregon Micro Systems </u></p>
  </td>
  <td valign=top style='width:23;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='width:106;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>1,063,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:29;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='width:110;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>937,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:136;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>13% </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:175;border-top:medium none msorm;padding:0in; !'>
  <p style='text-autospace:none'>Total</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:23;border-bottom:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td valign=top style='width:106;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>3,247,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:29;border-bottom:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td valign=top style='width:110;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>2,408,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:136;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:2.35pt;text-align:right;
  text-autospace:none'>&nbsp;29%</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Selling,
General and Administrative Costs (S, G&amp;A)</b>.&nbsp; S, G &amp; A expenses increased
3% to $1,694,000 for the six months ended December 31, 2003 from $1,645,000 for
the six months ended December 31, 2002.&nbsp; The increase is mainly due to increased
subsidiary sales and marketing expenses offset by cost saving measures
implemented at the corporate level, saving over $82,000 in management staff
expenses in addition to $32,000 of reduced amortization costs at OMS.&nbsp; Selling,
General &amp; Administrative costs by subsidiary were as follows (unaudited): </p>







<p style='text-autospace:none' align="center">&nbsp;</p>







<p style='text-autospace:none' align="center">-19-</p>



<hr color="#000080">
<p><br clear=all
style='page-break-before:always'>


</p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='border-collapse:collapse;border-collapse:collapse' bordercolor="#000000" width="587">
 <tr>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:174;border-right:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-bottom:medium none msorm; width:24;border-top:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td colspan=3 valign=top style='width:247;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>Six
  Months Ended December 31,</p>
  </td>
  <td valign=top style='width:138;border-top:1.0pt solid msorm;border-left:
  medium none msorm;border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>Increase/</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:174;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:24;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:106;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>2003</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:27;border-bottom:1.0pt solid msorm;
  padding:0in; !'>

  </td>
  <td valign=top style='width:113;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>2002</p>
  </td>
  <td valign=top style='width:138;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;(Decrease)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:174;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p style='text-autospace:none'>Micro Motors </p>
  </td>
  <td valign=top style='width:24;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:106;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>888,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:27;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:113;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>754,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:138;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>18%</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:174;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p style='text-autospace:none'>Oregon Micro Systems </p>
  </td>
  <td valign=top style='width:24;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:106;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>335,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:27;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:113;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>348,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-top:medium none msorm; border-bottom:medium none msorm; width:138;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>(4%)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:174;border-top:medium none msorm;border-left:1.0pt solid msorm;
  border-bottom:medium none msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p style='text-autospace:none'><u>Corporate </u></p>
  </td>
  <td valign=top style='width:24;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='width:106;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>471,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:27;border:medium none msorm;padding:0in; !'>

  </td>
  <td valign=top style='width:113;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>541,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:138;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>(13%) </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid msorm; border-right:1.0pt solid msorm; border-bottom:1.0pt solid msorm; width:174;border-top:medium none msorm;padding:0in; !'>
  <p style='text-autospace:none'>Total</p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:24;border-bottom:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td valign=top style='width:106;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>1,694,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='border-left:medium none msorm; border-right:medium none msorm; border-top:medium none msorm; width:27;border-bottom:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td valign=top style='width:113;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='text-align:right;text-autospace:none'>1,645,000&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:138;border-top:medium none msorm;border-left:medium none msorm;
  border-bottom:1.0pt solid msorm;border-right:1.0pt solid msorm;
  padding:0in; !'>
  <p align=right style='margin-right:2.35pt;text-align:right;
  text-autospace:none'>&nbsp;3%&nbsp;&nbsp;</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Research and
Development Costs</b>.&nbsp; Research and development expenses increased 7% to
$826,000 for the six months ended December 31, 2003 from $773,000 for the six
months ended December 31, 2002.&nbsp; The increase is due to increased Company
funded research and development at Micro Motors in support of the growing
medical product line.&nbsp; This increase is offset by the decrease at OMS
which is due to cost cutting concurrent with the completion of the MAX system
product line development.&nbsp; The MAX system is a next generation motion control
product that became available for sale in the latter part of fiscal 2003.&nbsp;
&nbsp;</p>



<p style='text-align:justify;text-indent:.5in'>The Company
engages in two types of research and development efforts.&nbsp; The first is
funded by the Company itself, intended to develop generic rotary drive multi
axis motion control technologies and products that will subsequently be
modified to meet the needs of individual customers.&nbsp; In this initial
phase, there are generally no revenues generated and the associated costs are
expensed as incurred. </p>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The second type of research and development efforts are those performed for and
funded by specific customers under the terms of a formal development
agreement.&nbsp; These efforts are generally for specific modifications to the
generic products developed by the Company-funded research.&nbsp; These projects
typically take place within 12 months of the generic development work being
completed.&nbsp; The Company recognizes revenue under these research and
development agreements as certain deliverables are met as specified in each development
contract.&nbsp; The research and development costs associated with these
efforts are capitalized as inventory and recognized as costs of goods sold when
the contracted deliverable is made.&nbsp; Company-funded research and development
costs by subsidiary were as follows:</p>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='margin-left:30.6pt;border-collapse:collapse' width="565">
 <tr>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:178;border-right:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-bottom:medium none; width:19;border-top:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td colspan=3 valign=top style='width:250;border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>Six Months Ended
  December 31,</p>
  </td>
  <td valign=top style='width:115;border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>Increase/</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:178;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; width:19;border-bottom:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='width:107;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>2003</p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; width:27;border-bottom:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='width:115;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>2002</p>
  </td>
  <td valign=top style='width:115;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>(Decrease)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:177;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p>Micro Motors </p>
  </td>
  <td valign=top style='width:19;padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:107;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>500,000&nbsp;&nbsp; </p>
  </td>
  <td valign=top style='width:27;padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:115;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>388,000&nbsp;&nbsp; </p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:115;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>29%&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:177;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p><u>Oregon Micro Systems </u></p>
  </td>
  <td valign=top style='width:19;padding:0in; '>

  </td>
  <td valign=top style='width:107;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>326,000&nbsp;&nbsp; </p>
  </td>
  <td valign=top style='width:27;padding:0in; '>

  </td>
  <td valign=top style='width:115;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>385,000&nbsp;&nbsp; </p>
  </td>
  <td valign=top style='width:115;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>(15%)&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:177;border-top:medium none;padding:0in; '>
  <p>Total</p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; width:19;border-bottom:1.0pt solid windowtext;
  padding:0in; '>
  <p align="right">$</p>
  </td>
  <td valign=top style='width:107;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>826,000&nbsp;&nbsp; </p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; width:27;border-bottom:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>$ </p>
  </td>
  <td valign=top style='width:115;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>773,000&nbsp;&nbsp; </p>
  </td>
  <td valign=top style='width:115;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>7%&nbsp;&nbsp;</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b>Operating Profits</b>.&nbsp; The Company's consolidated operating profit for
the six months ended December 31, 2003 increased $737,000 over the same period
in the previous year's operating (loss) of ($10,000) due to the increased sales
and margin improvements and controlled expenses at both operating subsidiaries.
Operating profit as a percentage of sales increased to 10.0% for the six months
ended December 31, 2003 compared to (0.2%) for the six months ended December 31,
2002.&nbsp; Operating Profit at Micro Motors increased from 7.6% of sales in
2002 to 13.6% of sales in 2003 due to the increased sales volumes and richer
product mix favoring medical products.&nbsp; Operating Profit at OMS increased
from 15.7% of sales in 2002 to 29.3% of sales in 2003 due to higher sales
volume, no amortization and a flat cost base.&nbsp; Operating profits by subsidiary
were as follows (unaudited): </p>







<p style='text-autospace:none' align="center">&nbsp;</p>







<p style='text-autospace:none' align="center">-20-</p>



<hr color="#000080">
<p><br clear=all
style='page-break-before:always'>


</p>







<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='margin-left:30.6pt;border-collapse:collapse' width="553">
 <tr>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:170;border-right:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-bottom:medium none; width:20;border-top:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td colspan=3 valign=top style='width:251;border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>Six Months Ended
  December 31,</p>
  </td>
  <td valign=top style='width:109;border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>Increase/</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:170;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; width:20;border-bottom:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='width:108;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>2003</p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; width:26;border-bottom:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='width:116;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>2002</p>
  </td>
  <td valign=top style='width:109;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>(Decrease)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:169;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p style='text-align:justify'>Micro Motors </p>
  </td>
  <td valign=top style='width:20;padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:108;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  796,000&nbsp;</p>
  </td>
  <td valign=top style='width:26;padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:116;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>328,000&nbsp;</p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:109;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>142%&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:169;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p style='text-align:justify'>Oregon Micro Systems </p>
  </td>
  <td valign=top style='width:20;padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:108;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  402,000&nbsp;</p>
  </td>
  <td valign=top style='width:26;padding:0in; '>

  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:116;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>203,000&nbsp;</p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:109;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>98%&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:169;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p style='text-align:justify'><u>Corporate </u></p>
  </td>
  <td valign=top style='width:20;padding:0in; '>

  </td>
  <td valign=top style='width:108;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>(471,000)</p>
  </td>
  <td valign=top style='width:26;padding:0in; '>

  </td>
  <td valign=top style='width:116;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>(541,000)</p>
  </td>
  <td valign=top style='width:109;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>(13%)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:169;border-top:medium none;padding:0in; '>
  <p style='text-align:justify'>Total</p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; width:20;border-bottom:1.0pt solid windowtext;
  padding:0in; '>
  <p style='text-align:right'>$</p>
  </td>
  <td valign=top style='width:108;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=center style='text-align:center'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  727,000&nbsp;</p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; width:26;border-bottom:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>$ </p>
  </td>
  <td valign=top style='width:116;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>(10,000)</p>
  </td>
  <td valign=top style='width:109;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>Loss to gain</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Net
Interest Expense. </b>&nbsp;Net interest expense was $35,000 in the six months ended
December 31, 2003, down from $44,000 in the prior year's quarter due to reduced
balance and rates on the restructured credit line. </p>



<p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Provision
for Taxes</b>. The Company's effective tax rate on income (loss) from
operations was 40% for the six months ended December 31, 2003, and 2002. </p>

<p style='text-autospace:none'><b>Liquidity and Capital
Resources </b></p>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The following table presents selected financial statistics and
information for the comparative six months last year and the last quarter
(unaudited):</p>



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='width:698;margin-left:27.9pt;border-collapse:collapse'>
 <tr style='page-break-inside:avoid'>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:342;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p><i>&nbsp;</i></p>
  </td>
  <td colspan=2 valign=top style='width:238;border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>Six Months Ended
  December 30,</p>
  </td>
  <td valign=top style='width:118;border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>Year Ending</p>
  </td>
 </tr>
 <tr style='page-break-inside:avoid'>
  <td valign=top style='width:342;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; width:123;border-bottom:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>2003</p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:114;border-top:medium none;padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>2002</p>
  </td>
  <td valign=top style='width:118;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>June 30, 2003</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:342;border-top:medium none;padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Cash and cash equivalents </p>
  </td>
  <td valign=top style='width:123;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>$532,000</p>
  </td>
  <td valign=top style='width:114;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>$140,000&nbsp;</p>
  </td>
  <td valign=top style='width:118;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>$795,000</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:342;border-top:medium none;padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Net cash provided by (used in) operations </p>
  </td>
  <td valign=top style='width:123;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $57,000</p>
  </td>
  <td valign=top style='width:114;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>($343,000)</p>
  </td>
  <td valign=top style='width:118;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>$503,000</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:342;border-top:medium none;padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Working Capital</p>
  </td>
  <td valign=top style='width:123;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>$5,073,000</p>
  </td>
  <td valign=top style='width:114;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>$4,007,000&nbsp;</p>
  </td>
  <td valign=top style='width:118;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>$4,584,000</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:342;border-top:medium none;padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Credit Line outstanding balance </p>
  </td>
  <td valign=top style='width:123;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>$250,000</p>
  </td>
  <td valign=top style='width:114;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>$315,000&nbsp;</p>
  </td>
  <td valign=top style='width:118;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>$432,000</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:342;border-top:medium none;padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Tangible book value/common share (undiluted)</p>
  </td>
  <td valign=top style='width:123;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $0.78</p>
  </td>
  <td valign=top style='width:114;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;$0.71&nbsp;</p>
  </td>
  <td valign=top style='width:118;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $0.72</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:342;border-top:medium none;padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Number of days of sales (DSO) outstanding in accounts
  receivable at end of quarter </p>
  </td>
  <td valign=bottom style='width:123;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  <p>54</p>
  </td>
  <td valign=bottom style='width:114;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  <p>53&nbsp;</p>
  </td>
  <td valign=bottom style='width:118;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  <p>50</p>
  </td>
 </tr>
</table>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The Company's working capital at December 31, 2003 increased to $5.1
million compared to $4.0 million at December 31, 2002 and $4.6 million at June
30, 2003.&nbsp; Cash Flow provided by (used from) Operations was $57,000 in the six
months ended December 31, 2003 compared to ($343,000) for the six months ended
December 31, 2002.&nbsp; Sustained profitability and reduced inventory, coupled with
a growth in accounts receivable consistent with higher sales level, contributed
to the provision of cash and increased working capital for the year.&nbsp; Management
believes that the Company's working capital needs over the next twelve months
can be adequately supported by current operations.</p>



<p style='text-align:justify;text-indent:.5in'>The subsidiaries
of the Company entered into a credit facility with Wells Fargo Business Credit
Inc. (WFBCI) in May 2002 for borrowings up to the lesser of $3,000,000 or the
total of the eligible accounts receivable.&nbsp; The terms of the credit
facility were to expire May 2005 and required monthly interest payments at the
prime rate (4.00% at December 31, 2003) plus 1.00% to 1.75% based on
outstanding borrowings, with a minimum interest charge of $12,500 per
quarter.&nbsp; The outstanding borrowings were secured by all assets of the
Company's two subsidiaries, Micro Motors and OMS, and were guaranteed by the
Company.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in'>In October 2003,
the credit facility with WFBCI was ended and refinanced with a more favorable
facility by Wells Fargo Bank, N.A. (Wells Fargo) for borrowings up to the
lesser of $2,000,000 or the total of the eligible accounts receivable.&nbsp;
The terms of the credit facility expire October 2004 and require monthly
interest payments at the prime rate (4.00% at December 31, 2003) or LIBOR plus
2.75% based on outstanding borrowings, with a no minimum interest charge.&nbsp;
The outstanding borrowings are secured by all assets of the Company's two
subsidiaries, Micro Motors and OMS, and are guaranteed by the Company.&nbsp; The
outstanding balance under the terms of this credit facility as of December 31,
2003 was $250,000.&nbsp; The total additional eligible borrowing capacity based
on the receivables balances at December 31, 2003 was $1,256,000.</p>







<p style='text-autospace:none' align="center">&nbsp;</p>







<p style='text-autospace:none' align="center">-21-</p>



<hr color="#000080">
<p><br clear=all
style='page-break-before:always'>


</p>



<p style='text-align:justify;text-indent:.5in'>There are
certain financial and non-financial covenants that the Company must meet to be
in compliance with the terms of the credit facility.&nbsp; At December 31, 2003 the
Company was in compliance with all covenants.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in'>In September 2002,
the Company's Board of Directors authorized the repurchase on the open market
of up to 500,000 shares of the Company's outstanding Common Stock, subject to
compliance with applicable laws and regulations.&nbsp; There is no requirement
that the Company repurchase all or any portion of such shares.&nbsp; The
maximum total value of the repurchase is not to exceed $500,000.&nbsp; The
maximum price per share that can be paid is $1.25.&nbsp; The repurchase is to
be financed both with cash generated by operations and through the utilization
of the Company's credit facility.&nbsp; From the inception of the repurchase
authorization through the year-end date of June 30, 2003, the Company
repurchased 75,700 shares of Common Stock for $43,741, at an average price of
$0.58 per share.&nbsp; No additional shares were repurchased in the six months
ending December 31, 2003.</p>



<p style='text-align:justify;text-indent:.5in'>At December 31,
2003, the Company had cash and cash equivalents of $532,000.&nbsp; The Company
believes that its cash and cash equivalents on hand at December 31, 2003,
together with cash flows from operations, if any, and amounts available under
the credit facility will be sufficient to meet its working capital and capital
expenditure requirements for fiscal 2004. </p>

<p style='text-autospace:none'><b>Item 3. Controls and
Procedures</b></p>

<p style='text-align:justify;text-indent:.5in'>Our Chief
Executive Officer and Chief Financial Officer (our principal executive officer
and principal financial officer, respectively) have concluded, based on their
evaluation as of December 31, 2003 (&quot;Evaluation Date&quot;), that the
design and operation of our &quot;disclosure controls and procedures&quot; (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (&quot;Exchange Act&quot;)) are effective to ensure that
information required to be disclosed by the Company in the reports filed or
submitted by us under the Exchange Act is accumulated, recorded, processed,
summarized and reported to our management, including our principal executive
officer and our principal financial officer, as appropriate to allow timely
decisions regarding whether or not disclosure is required.</p>



<p style='text-align:justify;text-indent:.5in'>During the
quarter ended December 31, 2003, there were no changes in the Company's
internal controls over financial reporting (as defined in Rule 13a-15(f) and
15d-15(f) under the Exchange Act) that have materially affected, or are
reasonably likely to materially affect, the Company's internal controls over
financial reporting.</p>



<p style='text-align:center;'>-22-</p>

<hr color="#000080"><br clear=all
style='page-break-before:always'>


<p style='text-indent:.5in' align="left"><b>PART II</b></p>

<p align=center style='text-align:center;text-autospace:none'><b>OTHER
INFORMATION</b></p>



<p style='text-autospace:none'> <b>Item 1 - Legal
Proceedings </b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The Company is a party to various legal proceedings incidental to its
business, none of which are considered by the Company to be material at this
time.</p>

<p style='margin-top:.25in;text-align:justify'> <b>Item 2.
&nbsp;&nbsp;&nbsp;&nbsp; Changes in Securities and Use of Proceeds. </b>&nbsp;</p>

<p style='margin-left:.5in;text-indent:.5in'>None.</p>

<p style='margin-top:.25in;text-align:justify'> <b>Item 3.
&nbsp;&nbsp;&nbsp;&nbsp; Defaults Upon Senior Securities. </b>&nbsp;</p>

<p style='margin-left:.5in;text-indent:.5in'>None.</p>

  <p class="MsoNormal" style="margin-top:.25in;text-align:justify"><b>Item 4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Submissions of Matters to a Vote of Securities Holders. </b>&nbsp;</p>
  <p class="MsoNormal" style="margin-top:.25in;text-align:justify;text-indent:.5in">
  On December 11, 2003, the company held its 2003 annual Shareholders Meeting.
  At the Meeting the Company&#39;s shareholders (i) elected Mark P. Murphy as a
  Class III director; (ii)&nbsp; ratified and approved an amendment to the
  Company&#39;s Articles of Incorporation to increase the quorum requirement, from
  one-third to a majority of the votes entitled to be cast, represented in
  person or by proxy, at a meeting of the Company&#39;s shareholders; (iii)&nbsp;
  ratified and approved the adoption of the Company&#39;s 2004 stock option plan;
  (iv) ratified and approved the adoption of the Company&#39;s 2004 Directors&#39; stock
  option plan; and (v) ratified the appointment of Moss Adams, LLP as the
  Company&#39;s independent auditors for the fiscal year ending June 30, 2004.</p>
  <p class="MsoNormal" style="text-indent: 0.5in" align="justify">Mr. Murphy received the following votes: For 6,658,003;
  and Withhold 1,796,277.&nbsp; The proposal to ratify and approve an amendment
  to the Company&#39;s Articles of Incorporation to increase the quorum requirement,
  from one-third to a majority of the votes entitled to be cast, represented in
  person or by proxy, at a meeting of the Company&#39;s shareholders: For 5,211,860;
  Against 88,500; Abstain 28,350; Broker Non-Votes 3,125,570.&nbsp; The proposal
  to ratify and approve the adoption of the Company&#39;s 2004 stock option plan:
  For 5,065,903; Against 231,657; Abstain 31,150 and Broker Non-Votes 3,125,570.&nbsp;
  The proposal to ratify and approve the adoption of the Company&#39;s 2004
  Director&#39;s stock option plan: For 4,709,203; Against 588,807; Abstain 30,700
  and Broker Non-Votes 3,125,570.&nbsp; The proposal to ratify the appointment
  of Moss Adams, LLP received the following votes: For 8,341,358; Against
  81,424; and Abstain/Broker Non-Votes 31,424.&nbsp; The following directors
  continued service on the Company&#39;s Board and were not voted upon by the
  company&#39;s shareholders at the Annual Shareholders Meeting:&nbsp; Michael A.
  Mesenbrink, Valerio L. Giannini, and George J. Isaac.&nbsp;&nbsp;

<p style='margin-top:.25in;text-align:justify'> <b>Item 5.
&nbsp;&nbsp;&nbsp;&nbsp; Other Information. </b>&nbsp;</p>

<p style='margin-left:.5in;text-indent:.5in'>None.</p>

<p style='text-align:center'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -23-</p>

<hr color="#000080"><br clear=all
style='page-break-before:always'>


<p style='margin-top:.25in;text-align:justify'><b>Item 6. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Exhibits
and Reports on Form 8-K. </b>&nbsp;</p>

<p style='margin-left:.5in;text-indent:.5in'><u>Exhibits</u>:</p>

<p style='margin-left:2.5in;text-indent:-1in' align="justify">31.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Certifications
of Chief Executive officer and Chief financial Officer Required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002</p>



<p style='margin-left:2.5in;text-indent:-1in' align="justify">31.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002</p>

<p style='margin-left:.5in;text-indent:.5in'><u>Reports on Form
8-K</u>:</p>

<p style='margin-left:2.5in;text-indent:-1.0in' align="justify">Form 8-K/A&nbsp;&nbsp;&nbsp;&nbsp;Filed
November 18, 2003 concerning the dismissal of McGladrey &amp; Pullen, LLP and
the appointment of Moss Adams, LLP as its new certifying accountants</p>



<p style='margin-left:2.5in;text-indent:-1.0in' align="justify">Form 8-K&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Filed
November 5, 2003 concerning the announcement of financial performance for the
quarter ended September 30, 2003.</p>



<p style='margin-left:2.5in;text-indent:-1.0in' align="justify">Form
8-K/A&nbsp;&nbsp;&nbsp;&nbsp;Filed October 22, 2003 concerning the dismissal of
McGladrey &amp; Pullen, LLP and the appointment of Moss Adams, LLP as its new
certifying accountants</p>



<p style='margin-left:2.5in;text-indent:-1.0in'>Form
8-K/A&nbsp;&nbsp;&nbsp;&nbsp;Filed October 17, 2003 concerning the dismissal of
McGladrey &amp; Pullen, LLP and the appointment of Moss Adams, LLP as its new
certifying accountants</p>





<p>SIGNATURES </p>



<p style='text-indent:.5in' align="justify">In accordance with the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.</p>



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=306
 style='width:229.5pt;border-collapse:collapse'>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in'>
  Date: February 18, 2004</td>
 </tr>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in'>
  <p>PRO-DEX INC. </p>
  </td>
 </tr>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in'>
  <p><u>By: / s / Patrick Johnson </u> </p>
  </td>
 </tr>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in'>

  &nbsp;</td>
 </tr>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in'>
  <p>Patrick Johnson </p>
  </td>
 </tr>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in'>
  <p>Chief Executive Officer</p>
  </td>
 </tr>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in'>
  <p>and President (Principal Executive Officer)</p>
  </td>
 </tr>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in'>
  &nbsp;
  </td>
 </tr>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in'>

  Date: February 18, 2004</td>
 </tr>
</table>



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=307
 style='width:230.25pt;border-collapse:collapse'>
 <tr>
  <td width=307 valign=top style='width:230.25pt;padding:0in 0in 0in 0in'>
  <p>PRO-DEX INC. </p>
  </td>
 </tr>
 <tr>
  <td width=307 valign=top style='width:230.25pt;padding:0in 0in 0in 0in'>
  <p><u>By: / s / Jeffrey J. Ritchey</u> </p>
  </td>
 </tr>
 <tr>
  <td width=307 valign=top style='width:230.25pt;padding:0in 0in 0in 0in'>

  &nbsp;

  </td>
 </tr>
 <tr>
  <td width=307 valign=top style='width:230.25pt;padding:0in 0in 0in 0in'>
  <p>Jeffrey J. Ritchey </p>
  </td>
 </tr>
 <tr>
  <td width=307 valign=top style='width:230.25pt;padding:0in 0in 0in 0in'>
  <p>Secretary, Treasurer, and</p>
  </td>
 </tr>
 <tr>
  <td width=307 valign=top style='width:230.25pt;padding:0in 0in 0in 0in'>
  <p>Chief Financial Officer (Principal <br>
  Financial and Accounting Officer)</p>
  </td>
 </tr>
</table>



&nbsp;<p>&nbsp;</p>
<p align="center">-24-</p>

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